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Can Direct Current microgrids influence energy prices?

One of the hottest topics today is a tremendous growth of energy prices. Every day we hear that electricity and natural gas prices are breaking new records, and it will continue to happen, since we are closer and closer to the winter that will bring lower temperatures and increased demand for energy. Electricity prices for Estonia’s bidding zone of the Nord Pool was 140 €/MWh for delivery on 19th of October. For the same day in Portugal, the price was 207 €/MWh. In Germany it reached 153 €/MWh, while in the UK it was 205 €/MWh.


It's unbelievable to which extent the prices are volatile. Yesterday Estonian electricity costed 140 €/MWh and today is 69 €/MWh. And what tomorrow will bring? 20 €/MWh or 180 €/MWh?


Let’s figure out what is the reason behind these high numbers. And how we could alleviate them using Direct Current (DC) technology?


If and how DC grid can reduce electricity prices?


We believe into Energy Transition and a need to switch from fossils to CO2 neutral and sustainable energy generation. Hereby we want to demonstrate that DC grids are not only more efficient and energetically flexible but also economically more feasible. With this evidence, the decision makers can boost the standardization processes and a definition of new requirements (voltage levels, protection, and security) which support the industry and the market to implement needful changes faster.


Therefore, we do believe that DC grids may globally contribute to the electricity prices reduction through the optimization of system costs. Here we present our 3-level hypothesis how DC could impact the energy prices:

Three-level hypothesis how DC impacts electricity prices

Level 1: Optimization of energy self-consumption


According to BEUC, 80% of EU households have cheaper to produce their own electricity rather than buy it from the utility, but still over 90% are not doing that. It´s estimated that this unused PV energy could cover up to 25% of whole EU electricity consumption. PV and energy storage together are the only way to reach 100% renewable system, to beat retail power prices and remove the grid fees. So, let’s see in detail how it could be achieved, assuming that a household has PV panels, a battery system and loads.


The energy generated by PV panels is DC-native as well as most loads (battery-based systems). The locally generated energy will be used locally by prosumer to cover its energy needs and the surplus (when generation > consumption; for example, during the day, when PV production is high, but load is low) will be injected into the battery storage. When the need for energy reappears (consumption > generation; for example, in the evening, when load is high), the energy will be extracted from the battery and used locally, instead of buying expensive electricity from the grid. So, the prosumer will be energetically more independent providing less pressure on grid, thus contributing to its stability.


Average hourly wholesale price for Estonia’s bidding zone of the Nord Pool during 2019 - 2021

In addition to skipping the grid fees, the main advantage of this system is that the losses will be significantly reduced: the energy produced by PV panels is DC-native as well as a major part of electric appliances (battery-based, LED etc). So, in the DC grid, there is no need to convert energy from DC voltage to grid compliant AC voltage and then reconvert back to DC to deliver this energy to DC-native devices. These conversions provoke losses up to 25% in total. In DC grid, the DC-AC-DC conversions are excluded. So, the AC-DC converters, which require more components than DC-DC (30%), raw materials (30% more copper), making the whole system expensive and complicated, will be excluded.


According to the European Commission, buildings are responsible for 40% energy consumption. So, taking into account that DC has approximately 25% of higher energy efficiency, we can assume that DC could avoid 10% of total energy consumption!!!

The 1st level a direct way for the end consumer to decrease the energy invoice using self-generated energy in the most efficient way and without paying costly distribution grid fees.


Level 2: Heating electrification


In the US, 38% of greenhouse gas emissions from residential housing are produced from heating and cooling rooms. In the UK 19% of the greenhouse gas emissions come from warming up the places we live and work. Many households across Europe still rely on gas-fired boilers for heating and hot water. However, due to the climate-related issues, coupled with high natural gas prices and energetical security, there must be found alternative options, such as the application of electrical heat pumps.


According to IEA, heat pumps could satisfy 90% of global heating needs with a lower carbon footprint than gas-fires condensing boilers. According to the European Heat Pump Association, between 2007 and the end of 2020, nearly 15 million heat pumps were installed across the 21 countries in Europe. However, they still meet no more than 5% of heating needs in buildings globally.


And now imagine the impact on climate change, if all gas-fired boilers could be replaced by heat pumps fed by renewable electricity? Forget about emissions!


As we know, the natural gas prices already broke all the records worldwide, and the end user has nothing to do rather than accept these price fluctuations. Limited supply from Russia has been cited as one factor that’s contributed to a sharp jump in natural gas prices in Europe. Did you know that according to MarketWatch, natural gas futures drop over 10% as the Russian president said on 6th of October that Russia could boost natural gas supplies to Europe? Seems ridiculous, but it means that the natural gas prices can be also influenced by words?!


If natural gas prices continue to be high, some gas plants would run less, while coal plants (more pollutant and expensive) will run more. It will provoke the rise of energy prices. If we switch from natural gas boilers to heat pumps, we will create less demand for natural gas. So, with less demand for this fossil fuel, the prices will also decrease, we will have less energy dependency and will emit less CO2. By the way, after recent tests realized in our DC demo office we assure, that regular ``AC`` heat pumps can also work well with DC microgrids, as being DC-native load.


Level 3: Mobility electrification


Did you know that the cars are responsible for 12% of all greenhouse gas emissions in Europe, and switching sale from polluting engines to fully electric is a crucial step towards zero emissions society by mid-century.


The uptake of Electric Vehicles (EVs) is increasing every day worldwide. Since EVs require charging at regular intervals to operate and their batteries are DC-native, it would be more beneficial to have DC EV charging stations instead of AC. DC charging stations may charge EVs faster than AC, due to increased efficiency and may incorporate PV panels to be more environmentally friendly.


As we already mentioned before, DC allows to avoid up to 25% of losses. Imagine, if you could save 25% of your monthly electricity bill? It may give also a strong motivation for car owners to switch from traditional gasoline vehicles to environmentally friendly EVs and decrease a demand for fossil fuels.


Electricity prices during 2019-2021 in nutshell


The evolution of electricity prices is defined by many internal and external factors that are specific to each geographical region. Mostly, the prices fluctuate according to the season, significantly depending on demand for heating and cooling. First, let’s take a quick glance to the prices of 2019 - 2021 and try to understand why during this period the prices varied so much.

Evolution of wholesale price for Estonia’s bidding zone of the Nord Pool during 2019 - 2021

This chart perfectly presents the electricity price variation during last three years:


· Pre-Covid time: 2019 - associated with „normal” prices

· Covid time: 2020 - associated with „abnormally low“ prices

· Post Covid time: 2021 - associated with „abnormally high“ prices


Energy price comparison between 2019 & 2020


In 2020, Covid-19 provoked an exceptional situation, when a low demand for energy, warm winter of 2019/2020 (kept EU gas storages full, thus lowering the demand for gas), increases in renewables production and a fall in spot natural gas prices (European gas prices were reaching historical lows because of oversupply and competition, specifically between Russia and the USA) drove down wholesale electricity prices in the second quarter to their lowest levels since the tracking began.


For example, the average wholesale price (in €/MWh) in three different electricity markets was:

23rd of February

2019

39,59

56,06

39,99

2020

11,61

37,48

5,30

Energy price comparison between 2020 & 2021


Since the beginning of 2021, electricity prices started to increase dramatically since the economies started to emerge from the pandemic. There are many different reasons influencing the PRICES GROWTH IN 2021, including:


  • The prices increased due to low gas storage stocks and due to lack of gas deliveries from Russia and low liquefied gas tanker deliveries from Asia

  • High European Union carbon prices

  • High coal prices on global market that is used to generate electricity and for heating

  • Lack of power production capacities, including phase out of nuclear plants in EU (will be again, mostly, replaced with gas stations) in short- and long-term period

  • Unplanned outages at some French nuclear power plants due to a strike has also helped the rally in European power prices

  • Lower renewable output (low wind and water level in hydropower reservoirs)

  • Low level of hydro reserves in Scandinavia, amplified by the move of new interconnectors to the UK and continental Europe

For example, the average wholesale price (in €/MWh) in three different electricity markets was:

1st of September

2020

51,38

45,64

49,81

2021

110,47

134,6

111,86

Usually, the changes in the wholesale prices can be predicted according to internal energy market signals (prices start to rise in response to a higher demand for heating, while decreasing in the summer period). But sometimes the prices do not depend just on internal factors, but also from external – as it happened in 2020 (Covid-19). Thus, to minimize the economically harmful impact of energy prices, there is a need to maximize the energetic security and independence in the most efficient way.


Not if, but when


It is more than obvious that a sustainability must be a part of our lifestyle. But we can also do a lot on a technical level to reach higher system efficiency and one of the promising but still unused option is to switch our electrical distribution system from AC to DC within the last mile level, where the most distributed production and consumption takes place.


The process is already running right now, and the globally implemented DC projects prove it, some of them:


· Public Lighting by CityTech

· DC houses of Team Casa

· DC highway N479

· Circl Pavilion of ABN Amro Bank in Amsterdam, NL

· And others


It is not about „if DC grid era comes“ but „when it comes“. What today seems surreal, tomorrow is totally acceptable. The technological progress occurs much faster than all we expect, especially in case of growing need. Today one of the most global needs - mitigate climate-related issues, using DC-native renewable energy sources, energy storage and electrical vehicles together with all DC-native loads will bring us totally new situation never seen before. Market is already opening and will continue to open step by step as it has done everywhere, probably with hybrid solutions, both AC and DC.


Stay energized!

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