Business model for future electricity distribution networks

Mr Rahmatallah Poudineh, Durham University

Tooraj Jamasb, Durham University

Electricity Distribution networks are traditionally designed to operate as passive and one-way transporters of electrical energy which their revenue is based on the connection and use of system charges. The increase in penetration of distributed energy resources change the dominant conventional generation-transmission-distribution paradigm and hence, create problems for business model of distribution network companies. This is because penetration of distributed resources close to the demand site will reduce the amount of energy transported in the distribution grid and consequently will lead to revenue shrinkage of these companies (Poudineh and Jamasb, 2014).

At the same time, massive inefficiency prevails in traditional asset-based network service provision. For example, traditional network reinforcement to upgrade capacity is economically inefficient because a major part of the capacity of the network remains unused for long periods of time in anticipation of increased demand (Hoff et al. 1996). Moreover, following network reinforcement, there are instances when demand does not grow as predicted because the consumption pattern of consumers changes. For example, when consumers using appliances which are more energy efficient. In this situation the problem of inefficient network utilisation will be exacerbated. Furthermore, public opposition with respect to over-ground distribution infrastructures can always be a major issue which hampers the objective of infrastructure development. Therefore, there is a need for evolution of business model and operational philosophy of distribution network companies in order to adapt to the dynamic environment of power system.

Given that background, this paper introduces an extended business model for distribution network companies. This business model is based on the combination of asset-based and non-network solution for provision of network services. The model takes the advantages of synergy between increasing integration of distributed energy resources and the need for network capacity and also, the change in operational philosophy of distribution network based on active network management. The extended business model will improve the role of distribution network companies in the process of electricity supply and helps them to fend off shrinking of their revenue as a result of penetration of distributed resources.

References:

Hoff, T.E., Wenger, H.J., and Farmer, B.K. (1996),”Distributed Generation: An Alternative to Electricity Investments in System Capacity”, Energy Policy, 24(2):137-47.

Poudineh, R. and Jamasb, T. (2014),”Distributed Generation, Storage, De-mand Response and Energy Efficiency as Alternatives to Grid Capacity En-hancement”, Energy Policy , 67:222-231.