Market and economic modelling of the impacts of distributed generation and local co-operating agent based demand side management.
The case for distributed generation and demand side management is becoming economically and technically stronger all the time. The benefits of a large number of small environmentally friendly generation units such as wind turbines or photovoltaic panels are apparent from two main points of view. The first and most obvious is the environmental benefits, and the second point of view includes the benefits described in project 1 such as the reduction in various infrastructure costs due to the benefits of locating generation sources closer to load centre.
The economic benefits of DG include the reduction of energy cost due to the reduction in resistive line loses compared with locating large power stations in remote sites, which are chosen because of their closeness to fuel sources such as coal or gas. Additionally increased penetration of distributed generation can lead to new mechanisms for managing system stability and reducing the need for network augmentation as demand grows.
Additional economic synergies will emerge when Distributed Generation is considered in conjunction with a successful DSM model. In order to understand the financial and economic impacts of distributed generation and demand side management the system simulations as described in projects 1 and 3 will need to be couple to electricity market simulations.
This project seeks to understand the economic impacts of distributed energy in the Australian electricity system. The analysis includes the economic benefits that stem from deferring new network infrastructure and the opportunities for new investment in various aspects of the electricity and energy system. It also investigates the flow-on effects of actions such as massive distributed energy deployment on the greater economy.
Potential benefits The following economic impacts are expected to emerge:
Reduction in spot electricity price spike incidence and general price volatility thereby reducing portfolio price risk. This will have the economic impact of reducing the cost of managing price volatility risk through the reduction in hedge contract premiums. Furthermore, reduced volatility will reduce the barriers to entry to financial intermediaries such as investment banks who remain wary of trading significant volumes of electricity derivatives, as they do not possess natural physical hedges to mitigate their risk.
The main benefit of the entry of market players such as these market makers is the increase in derivative market liquidity. This liquidity will lead to better forward price discovery. A liquid forward curve will result which is a minimal requirement for efficient new generation entry and new demand side project.
An added benefit of increased derivatives market liquidity is the improved efficiency of the credit-risk management side of the trading business. This improvement will occur through mechanisms such as the potential increased use of exchanges (e.g. SFE), which eliminate most of the credit risk. Managing credit risk has significant real costs as well as opportunity costs.
Other potential benefits are the reduction in average energy cost due to lower average line losses and the reduction in the cost of ancillary services due to the ability of distributed energy to provide the services more economically.
University of Queensland
This project will provide a comprehensive understanding of the impacts of distributed energy in the Australian electricity system. This will include the economic benefits due to deferral of network infrastructure as well as the enablement of new investment in various aspects of the electricity and energy system. It will also analyse the flow-on effects of such a massive DE deployment on the greater economy.
Additionally it will provide support for the deployment of DE through recommendations on market structure and regulation.
The development of price response schemes for consumers and utilities, which will provide both system level economic benefits and end-user, cost reduction benefits.
The project will provide the economic basis for energy policies needed to effectively transform Australia’s energy sector into a climate friendly state. This will cover:
Specifications for Carbon trading scheme or other greenhouse gas credit trading schemes
Cost benefit analysis framework to help energy sector investors to make their investment decisions.
Market risk management models and software algorithms for operating in new greenhouse gas markets.