Regulatory challenges and barriers

The regulatory challenges and barriers for microgrids exist because current regulation models have been created without taking the possibility of island operation into account. Traditional interconnection rules require DER units to disconnect during the occurrence of any disturbance, while the main idea of microgrid is that it will be able to island and ride through utility grid disturbances.

The anti-islanding rules of existing European grid codes demand immediate disconnection of DER units to prevent potential safety threats to other network users and utility field crews, as well as to avoid operation and protection complexities. However, at the same time they allow intentional islanding of loads such as industrial plants, hospitals etc. Electricity utilities and distribution companies are natural monopolies and a common hypothesis is that utilities raise barriers to interconnection of distributed generation and also discourage energy efficiency investments due to risk of lost revenues and profits. In general, market mechanisms are still not mature enough to accommodate the participation of microgrid entities. (Marnay et al. 2008; Venkataramanan & Marnay 2008)

Possible future barriers for generalization of microgrid were found by Schwaegerl et al. (2009) to be:

– Deep connection charge applied to DER units – Forbiddance of local energy trading

– Low electricity prices and time-invariant tariff

– Negligence of locational, environmental, and efficiency value of small DER units and

– Lack of information transparency concerning real-time network conditions.

2.4.1 Need for new market structures

Schwaegerl et al. (2009) have seen the microgrid concept as a key driver for realizing profitable operation of DG due to its capability of providing local identification and pricing of DG created values. Two potential sectors, retail and service markets, can be discussed in relation to the microgrid concept (Schwaegerl et al. 2009).

The capability of having local retail market directly between DER units and end consumers is often presented as key part of microgrid concept which makes it

different when compared to other aggregator models such as virtual power plant (VPP) as shown in Figure 10. In microgrid concept technical aspects of the distribution can be considered in parallel with commercial aspects. The main challenge of location specific market may be the acceptance of it, because it goes against the common principle that energy produced from any generator in the grid should be available to any customer at any location of the grid. But local market is not necessarily a mandatory feature of microgrids, because technically a grid connected microgrid may be operated without problems even if local market is strictly banned. (Schwaegerl et al. 2009)

However, in the future market models for smart grids with island operation capability the value of improved energy efficiency and reliability should be identified with a price signal, e.g. the part of load supplied from local DG should benefit from it when compared to the part of the load supplied from utility grid source. One possibility could be for example location specific distribution-use-of-system (DUoS) charge.

Figure 10. Illustration of differences between VPP and microgrid concept with local retail market. (Schwaegerl et al. 2009)

There is also a second possibility of local market formulation between local DER units and LV distribution network i.e. local service market. As stated by Schwaegerl et al. (2009) this kind of local service market is essential for recognition of technical contribution of DER units to the LV microgrid in which they are connected. In Figure 11 the potential formulation of technical service markets introduced by Schwaegerl et al. (2009) is illustrated for DER units located at different voltage levels. It was also stated by Schwaegerl et al. (2009) that the most convenient approach will limit the contribution of the DER unit to

the voltage level to which it is connected. However, it could also be possible to allow an aggregated group of small DER units of corresponding microgrid to take part in the service market of a higher voltage level, as shown in Figure 11 with dotted lines. Schwaegerl et al. (2009) defined that in general five main types of technical services can be potentially traded between DSO and DER units in microgrid:

1. Frequency support (load following) service via control of active power 2. Voltage support service via control of reactive power

3. Peak loading and power loss compensation service 4. Islanding and blackstart support service and 5. Balancing power supply service.

Figure 11. Provision of technical services in present and future smart grids.

(Schwaegerl et al. 2009)

It is worth mentioning, that all types of DER units are not capable of providing all service types listed above. For example, PV and wind turbines are not capable of controlling their active power output. Only power curtailment i.e. active power reduction is possible due to limited availability of primary energy source.

Therefore these DER units are not capable of providing any frequency, islanding, or balancing support services. (Schwaegerl et al. 2009)

Future regulation, grid codes and market structure should be based on hierarchical architecture so that the real benefit of electricity production by DG units near the consumption and the use of DER in active management of distribution networks (i.e. energy efficiency aspect and matching principle) would be realized to different parties fairly.

Schwaegerl et al. (2009) have also suggested a possible roadmap for microgrid development in Europe. This roadmap was based on the idea that the present barriers such as, cost, policy, and technology are subjected to considerable uncertainties in the future. It means that in the end they can possibly turn into key enablers, which could then lead to widespread adoption of microgrids across Europe. (Schwaegerl et al. 2009)