The power market design column – Auto generation is off-grid generation

When discussing the design of the power market one should know what power actually is. What are we trading when we are buying and selling electricity?

I am a power engineer and the issue with engineers is that they are eager to explain things without really understanding the underlying physics. So I am on a slippery slope, but allow me to give it a try.

Maxwell has learned us that electricity is part of a phenomenon called electromagnetism. Electromagnetic force is one of the four forces in nature and it works on charges. It can be generated by three types of fields known as the electrostatic field, magnetostatic field, and the electromagnetic field. An electrostatic field is created by non-moving charges and a magnetostatic field is created by moving charges. But the electromagnetic fields are the funny ones and are used in our electricity supply system. These are time varying fields containing both electric fields and magnetic fields. These fields are intertwined. A varying magnetic field induces an electric field and vice-versa. These fields provide a force that acts on charges and such force can deliver energy.

So if we trade “electricity” we do not deliver electrons, but we deliver energy that is generated by an electromagnetic field.

You may now wonder why the title of this column is about “auto generation”. Auto generation (or self-generation) is normally defined as the electricity that is produced and self-consumed by the same entity (also called prosumer). This is case 1 in the illustration below.

However, can one really claim that the electricity produced is also consumed by that same entity? And what if the electricity consumed and produced are continuously same in size? From a technical or physical perspective, there is no difference between case 1 and case 2. The only difference is that in case 2 more “conductors” are part of what is called the public grid and there are two meters instead of one meter. But placing more meters or labelling conductors as “public grid”, does not change the physics. All generators and consumers are connected through conductors and make use of the electromagnetic field to produce and consume electrical energy. One can eat the apples that are picked from the own garden. But if one really wants to consume self-generated electricity, one has to go off-grid (case 3). And in case 1, it would be more correct to use “behind-the-meter generation” instead of “auto generation”.

It is obviously possible to simply “agree” that electricity produced in case 1 is also consumed by the same entity if the consumption is equal or higher than the generation. However, again, there are no laws of physic that would justify such agreement.

The possibility of auto generation is considered as an important right for consumers. And I am sure that nobody wants take away such rights. I however do hope that my short course in the physics of electricity shows that a generator in case 1 should be treated in the same way as in case 2. A prosumer should not be able to avoid paying taxes or fees that are charged on electricity consumption by investing in generation “behind the meter”. Otherwise, less efficient generators behind-the-meter will easily out-compete other, more efficient generators. This would result in a welfare loss that ultimately will have to be paid by all citizens.

This issue is also addressed in the 1st White Paper of the EU regulators[1]. The regulators advice: “… it is important to ensure that consumers who engage in self-generation, also referred to as “prosumers”, pay their fair share of network and other system costs/charges. Otherwise, these costs would be borne by other, potentially more vulnerable/poorer, consumers. This type of unfair cross-subsidisation of costs must be avoided.” The regulators focus on a fair allocation of costs but do not mention the importance to avoid overall higher costs.

In conclusion, a level playing field is a known requirement for a well-designed power market. Such level playing field must be established for all generators, irrespective whether they are located in front of or behind the meter.

This is my 6th column on power market design issues. The earlier columns can be read at:

https://www.dhirubhai.net/pulse/power-market-design-column-balancing-importance-paul-giesbertz

https://www.dhirubhai.net/pulse/power-market-design-column-value-voll-paul-giesbertz

https://www.dhirubhai.net/pulse/power-market-design-column-passive-consumer-paul-giesbertz

https://www.dhirubhai.net/pulse/power-market-design-column-interconnector-demystified-paul-giesbertz

https://www.dhirubhai.net/pulse/market-design-column-economist-disruptive-power-wind-solar-giesbertz

Disclaimer: The views as expressed in this column do not necessarily reflect the views of Statkraft

Paul Giesbertz

[email protected]

[1] https://www.ceer.eu/portal/page/portal/EER_HOME/EER_PUBLICATIONS/CEER_PAPERS/White%20Papers/Positions/EuropeanEnergyRegulators_WhitePaper-RES%20in%20the%20Market_FINAL_2017-05-08_0.pdf