Energy transition = Renewable Energy + Strong Networks

The managing director of the German Agency for Renewable Energy, Philipp Vohrer, started to celebrate several years ago: “The energy transition gives people the opportunity to take energy supplies into their own hands and join in the expansion of regenerative energy production.“ Photovoltaic equipment on the roof of every house. A wind turbine for every community. Everyone supplies everyone else. A nice idea. But one problem was overlooked: in order to exchange and transport energy, you need secure networks. The feed-in of energy from thousands of photovoltaic and windpower plants with their high volatility creates enormous challenges for the existing networks – which were not designed for this purpose. The challenges are so great that many experts are even warning of threatening black-outs. In short: will the energy transition make the lights go out?

We asked Eveline Steinberger-Kern, consultant and expert for renewable energy, Wolfgang Gawlik from the Institute of Energy Systems and Electrical Drives at the Vienna University of Technology, Andrea Edelmann, EVN’s innovation officer, Johannes Reindl, managing director of Netz NÖ GmbH, and Franz Dinhobl, managing director of EVN Wasser, to give us their opinions.

Have the established utility companies slept through the energy transition?

Eveline Steinberger-Kern: If you analyse the entire branch – and here I mean global – you would have to answer this question with yes. The market distortions have led to impairment losses of 500 billion euros since 2008.

Andrea Edelmann: I think we need to take a closer look at the individual utility companies. If we evaluate EVN’s commitment to windpower, the results are much better: in Lower Austria, EVN has made good use of the opportunities to date.

Johannes Reindl: EVN is also remarkably well positioned on the photovoltaic market in Lower Austria. One-fourth of all photovoltaic systems in Austria are connected to our network. Here we’re talking about a total capacity of 160 megawatts, which after all, corresponds to the output of a small Danube River power plant. But we’re also aware of one other important fact: the boom in photovoltaics and windpower has created significant challenges for EVN as a network operator.

You just mentioned one of the major points on the agendas of today‘s utility companies: renewable energies are, in part, highly volatile and that creates major challenges for network operators…

Reindl: That’s right. The networks currently in use weren’t created for these new challenges. They were designed as one-way lines from the power plant to the customer. What we now need to do is to restructure these networks into motorways that can carry twoway traffic. And there’s one more difficult assignment: even if the expansion is successful, substantial efforts will be required to keep the networks stable.

“The market distortions have led to impairment losses of 500 billion euros since 2008.” Eveline Steinberger-Kern

Wolfgang Gawlik: No one could have predicted the enormous momentum that we are now seeing in the area of renewable energies. My colleagues once coined the saying: “A photovoltaic cell is good for a pocket calculator, and nothing else.“ Now we have solar plants with 35 gigawatts of installed capacity – for example, in Germany. Of course, network operators would love to build new networks – but they’re not allowed to. Or not allowed to as quickly as they want.

Who is responsible for taking the next step?

Gawlik: What we’re discussing here is a social problem. On the one side, the public acceptance of renewable energy is high. However, when energy prices increase, this acceptance drops very quickly. And when the discussion turns to the necessary network expansion, the acceptance is even lower. We need to start right here and clearly state: you can’t have it all. If we want an energy transition, we must also be prepared to pay for it and cut back somewhere else.

Edelmann: I’d like to make another brief comment on the previously mentioned impairment losses. We are currently confronted with rapid changes in the value of certain power plants. Natural gasfired power plants were the focus of intensive construction activity only a few years ago – but they can’t be commissioned today. Simply because they’re not profitable.

Reindl: Natural gas-fired power plants are dramatically undervalued at the moment. Because they provide key support for network stability. The wind blows when it wants to, the sun shines when it wants to and customers use electricity when they want to. Unfortunately, all these factors aren‘t synchronised. We need an energy source that can provide a flexible, reliable and environmentally friendly balance. And that, for example, is natural gas.

Edelmann:But right now, there’s no compensation for the costs of keeping these power plants on stand-by. That, however, is exactly what we need.

Specifically: What dangers are we facing from the energy transition?

Gawlik: Many of the elements that kept the system stable for a long period of time don’t work as well any more. The shift from a hierarchical, centrally managed system to a decentralised system sounds nice: the neighbours supply each other with electricity. Everybody helps everybody else. But it’s not that simple. The restructuring of the networks is a huge challenge.

And financially?

Gawlik: Subsidies were real doping for renewable energies. Today we have a system on “speed“ with strong side effects. In Germany, for example, the energy transformation will still trigger substantial costs in two decades and it’s not clear who will pay the bill.

Edelmann: We are now also witnessing the decommissioning of windpower plants because they can’t recover their operating costs without public subsidies. People are taking on the risk of very high costs for their national economy, but without a strategic plan.

Let’s go back to the negative effects on the networks: Is Austria facing a black-out in the near future?

Gawlik: The danger of black-outs is also increasing in Austria. You can see that in the transmission networks. In network operations, there is a sharp rise in the number of necessary interventions. The networks are moving closer to their maximum load, which makes a major outage more likely. However, we’re still able to maintain stable network operations and I don’t have canned food stored at home because I’m worried about a black-out.

“If we want an energy transition, we must also be prepared to pay for it.” Wolfgang Gawlik

Mr. Reindl, do you have any emergency rations in the basement?

Reindl:No. I also believe that our networks will be stable in the future. But we shouldn’t take supply security for granted. Also because we know that EVN’s customers expect this supply security. But let’s be honest, we have been living in a fragmented energy world since 2001. Modern approaches like “smart grids“ don’t work well in a fragmented world, as every participant’s objective is to optimise his or her own clearly defined business. That’s why I’m worried about excessive unbundling and regulation and the possible negative effects on network stability.

“We shouldn’t take supply security for granted.” Johannes Reindl

Mr. Dinhobl: As the managing director of EVN Wasser, how do you see the much-discussed subject of supply security in the energy industry? What is the situation with respect to water supplies?

Franz Dinhobl: One big difference between the electricity and water system is, of course, the regulatory environment. But supply security and quality are also important for water supplies. In contrast, the price is less of an issue. You can’t put a price on a litre of tap water because it costs so little. The charges are manageable and a minor cost factor for households.

Steinberger-Kern: In comparison with other countries, we are still privileged with respect to supply security here in Austria, aren’t we?

Dinhobl: That’s right. We use only three per cent of the entire water volume for drinking water, industry and agricultural applications. In comparison, Belgium uses 43 per cent. This statistic alone illustrates our enormous resources.

“Supply security and quality are also important for water supplies.” Franz Dinhobl

And how do you guarantee supply security?

Dinhobl: As a water supplier, we have invested over the past years and decades to develop wells and well fields in areas of Lower Austria that are rich in water and then connect these areas through ring pipelines. That allows us to create a balance between the different regions. From a regional point of view, there are areas where quality or volume can be a problem. For example, we transport supplies to the eastern Weinviertel region from the source areas in the Danube lowlands, where there is sufficient high-quality water.

Reindl: Here I can see a number of parallels to the energy industry. To ensure supply security in all regions, you also need intelligent pipeline planning and the right investments for electricity and natural gas.

Intelligent pipeline planning brings us back to the energy industry and to smart grids: Don’t they work in Austria?

Gawlik: Of course, the smart grids work! The only problem is that we can’t use their full potential in Austria. For example, a network operator is not allowed to set up a decentralised storage facility to collect electricity in peak periods and use it later when it’s really needed. Regulations put a stop to some solutions.

Steinberger-Kern: We have reached a point where we’re committed to carrying out the energy transition. Whether we want this transition or not ceased to be an issue a long time ago. The question now is whether and how we can get a grip on the situation. And while we’re debating, new competitors are entering the market – not colleagues from the industry, but corporations we all know well from the Internet. For example, Google recently spent 3.3 billlion dollars to purchase the thermostat producer “Nest“ (note: a developer of thermostats that can be controlled via the Internet) to optimally match energy generation and demand in households. That is a classical service that a utility company should and must provide. The real question is: How can a regional company like EVN offer these types of services – instead of companies that grew up in California? After all, EVN has a lot more know-how in this area than Google!

Is the industry at risk of missing the energy transition a second time?

Edelmann: Two different speeds are now colliding: the fastest branch on the planet has met a very traditional branch. Our strength is the capability to offer services that are also based on trust. We can’t compete with the size and speed of companies like Google. Then again, there is also good news: we have already developed services that are moving in this direction. Our “Smart Home“ product has been on the market for two years.

“Our strength is the capability to offer services that are also based on trust.” Andrea Edelmann

Reindl: I think we also have a number of things to offer when it comes to speed: we can reach our customers quickly when there are problems. We’re also innovative and can develop products in a short period of time. For example, we built a device to regulate the amount of energy fed into the network by photovoltaic equipment, so that in peak periods, it limits the feed-in to the actual network capacity.

Once again on smart grids: What could they contribute to supply security?

Gawlik: You could accomplish a great deal by simply capping the peak time feed-in. That would provide substantial relief for the networks – without losing a great deal of energy or destroying value. But, of course, that’s not what the plant operators want. And especially not when they have a guarantee to sell every single kilowatt hour of electricity.

Reindl: Thank goodness, we don’t have this guarantee here! Austria was smarter than German lawmakers when the green-electricity regulations were created. In Germany, the network operators are required to purchase all of the energy.

Steinberger-Kern: The German economics minister recently spoke about a calculation which shows that the expansion of the German electricity network to transport electricity from the windy areas in the north to consumers in the south would cost about 50 billion euros. He believes these costs could easily be cut by one-third with a “smart“ concept – in other words, power plant operations could be reduced when the electricity is not needed or transformers could be more efficiently controlled.

Reindl: As a network operator, we could also install batteries in the local network to improve stabilisation. However, the regulatory authority must make a clear commitment to compensate the network operator for these added costs.

“You need intelligent pipeline planning and the corresponding investments.” Johannes Reindl

Steinberger-Kern: Perhaps we need to realise that the network operators have completely different responsibilities in our decentralised supply world. The market organisation originally created by liberalisation is now outdated.

“The storage of energy will pay off much more quickly than many of us expect.” Eveline Steinberger-Kern

We’ve been talking about the regulation and storage of energy. But where exactly will this storage take place? At a central location in a pump storage facility in the Alps or decentralised as local battery storage?

Edelmann: In both places. We will certainly see widespread local storage in battery form. But, in any case, we will also need large facilities like pump storage power plants.

Reindl: At the present time, it doesn’t pay for homeowners to store surplus energy from their own photovoltaic equipment. It makes more sense to feed this energy into the network. However, that could change in the future.

Steinberger-Kern: I believe the storage of energy – even smaller volumes – will pay off much more quickly than many of us expect. The costs will suddenly become competitive. I visited MIT (note: Massachusetts Institute of Technology) at the beginning of the year and took a look at their research on this subject. Very impressive! Not only with respect to the technologies, but also the costs.

If there is a sharp drop in the cost of electricity storage: wouldn’t the expansion of the networks be a bad investment?

Gawlik: The answer is simple: no! Even the most decentralised energy system needs a good network to utilise the effects from the different production and consumption periods.

Supply security is declining – that’s one point we agree on. Exactly what has to happen now to avoid black-outs?

Steinberger-Kern: Three things: First, renewable energy forms must be gradually weaned from the subsidy schemes and integrated in the competitive market. For that to work – and here is the second point – the options for network operators must be adjusted. And third, in the current transition phase, we won’t be able to manage without more environmentally friendly fossil energies. We need clear price incentives – for example, for natural gas, which is much more environmentally compatible than brown coal. Then we can bring together supply security and renewable energy carriers. I’m sure of that.

Reindl: From our point of view, investments in the network are absolutely necessary. EVN has decided to follow this course and strengthen its networks. Because we want to offer our customers the same high supply security also in the future.