Distributed Energy Innovation
By 2015 the development of distributed energy in Costa Rica had come to a halt. A distributed generation net metering pilot project had ended, and the lack of shared understanding and visions among electricity companies, energy consumers, solution providers, the government and the market regulator was growing. Meanwhile, the pace and diversity of innovation with distributed energy resources (DERs) in international markets was accelerating, signalling a profound paradigm shift in the energy industry.
In June 2015, to help bridge differences and contribute to a constructive debate on distributed energy in Costa Rica, ESCOIA brought together a team of local and international experts. Its aim was to inspire innovation and progress by identifying innovative technologies, business models and policies internationally, analysing local drivers and barriers, and proposing a set of concrete actions that Costa Rican stakeholders could take to succeed with distributed energy.
To deliver on these ambitions, the team reviewed international academic literature and industrial best practices, visiting and interviewing numerous innovative players in Europe and North America. It also interviewed Costa Rican energy experts, industry insiders and policymakers, bilaterally and through round-tables, and consulted citizens on their perspectives and ideas with respect to distributed energy. Based on these inputs, four concrete innovation proposals for Costa Rica were developed.
Preliminary results of the investigation and development were presented at open workshops and in bi-lateral meetings, and scientific papers and presentations were prepared for international scientific conferences. The team is grateful to the hundreds of people who shared their insights and ideas on the topic. Without such feedback and engagement this project would not have been possible.
Finally, the team wishes to express its gratitude to the British Embassy in San José and the UK Science and Innovation Fund, whose financial contribution made the project possible.
Comments and questions on this report are welcome and should be addressed to the authors.
More than distributed generation
In addition to sunlight, Distributed Generation (DG) technologies can take advantage of renewable sources such as wind, biogas, biomass and waste heat to generate both electricity and heat. Energy Efficiency (EE) can reduce peak and overall energy demand by behavioural change and installing more efficient lighting, heating, cooling and appliances.
Demand Management (DM) takes advantage of the time-flexibility of different energy consuming activities, such as water pumping, refrigeration and electric vehicle charging, thereby reducing peak demand charges and taking advantage of cheaper, off-peak energy tariffs.
And with the quickly falling cost of batteries, Energy Storage (ES) is an increasingly attractive option for reducing peak demand, increasing self-consumption of DG and providing backup in case of supply disruptions. In addition to the improving performance and falling costs of individual DERs, advances in sensors, micro-processors and communication technologies are making distributed energy systems increasingly competitive on cost and performance; it is no longer necessary to connect to the grid to meet energy requirements. Numerous examples of innovative distributed energy systems and business models are provided throughout this report.
Energy consumers want – and have – choice
As technological capabilities increase, costs come down and local supply chains are strengthened, DERs are increasingly viable options for residential, commercial and industrial energy consumers alike. This report shows that Costa Rican citizens and companies are highly interested in taking advantage of these opportunities, and are actively seeking to get involved. As pioneers share their experiences with their friends and family, demand grows. Californian experience shows that by far the most likely predictor of having a solar panel is having a neighbour who has installed one (The Economist, 2016).
Communities can facilitate DER cooperation
between suppliers and consumers of energy
To fulfill their interest in engaging on energy issues, Costa Rican citizens say they want to get involved at the community and municipal levels. Internationally, thousands of community energy initiatives have proven effective in empowering communities, raising awareness about clean energy generation and smart, efficient consumption, and in distributing the social, environmental and economic benefits of energy.
Inspired by different community level organisations currently in operation in Costa Rica, our partners from Centro Para la Sostenibilidad Urbana and Batalla Salto Luna Abogados developed three potential institutional models for a proposed Costa Rican community energy scheme, Energia Comunitaria Costarricense (ECC). In addition to helping their citizens and communities, ECCs can helpCosta Rican electricity companies ensure that DERs are deployed in a way that benefits the grid. For example, a community could form an ECC to jointly invest in a DER system on a community facility, such as a school, stadium or church, to coordinate demand among community members to maximise local consumption of the generated electricity. This would reduce the need for grid infrastructure investments and reduce distribution losses. Similarly, virtual net metering of individual electricity meters in a condominium would allow home owners to jointly invest in a DG installation on communal buildings. This would be a more resource-efficient practice than installing and operating small DG systems individually, both for the community and for the grid operator.
Smart vehicle charging provides a unique opportunity for implementing holistic DER strategies
To meet its commitment of reducing greenhouse gas emissions by 25% by 2030 as compared to 2012, Costa Rica will depend on shifting to renewable energy and more energy efficient technologies in its transportation sector. Electric drivetrains are three to four times as efficient as traditional drivetrains based on internal combustion engines, and EVs can leverage Costa Rica’s renewable electricity to replace imported fossil fuels. Internationally, electricity is set to become a dominant energy carrier for transportation, pushing major countries as diverse as India and Germany into contemplating bans on fossil-fuels for transportation from 2025-2030. In Costa Rica, a proposed law seeks to speed up the deployment of electric cars, buses, trains and bikes in the country. For the Costa Rican energy system and economy, electrification of transport offers a host of benefits. Higher electricity demand would enable development of the country’s large untapped renewable energy resources and reduce grid infrastructure costs per energy unit delivered (better utilisation of infrastructure). It would also reduce the more than $2 billion per year import of fossil fuels, instead generating local jobs and economic activity. And it would help safeguard Costa Rica’s “Pura Vida” spirit by eliminating emissions of CO2, particulate matter and other toxic gases that cause climate change and imperil public health.
To capture these opportunities, the Costa Rican electricity industry should proactively seek to intelligently integrate electric vehicles in a way that benefits the energy system. We have analysed the challenges and opportunities that electric vehicles represent for the grid, and proposed concrete smart charging strategies that can reduce peak demand on the distribution and transmission grids, while providing attractive charging services to fleet owners, transportation companies and private citizens. Large cost savings are possible, and internationally proven strategies are available for testing and further development in Costa Rica. Pioneering smart e-mobility at scale offers Costa Rica an opportunity to develop and demonstrate innovations that address a quickly growing international market.
Energy service innovators can leverage DERs to serve commercial and industrial energy consumers
DERs represent multiple opportunities for Costa Rican businesses and institutions to reduce their energy costs, increase environmental performance and improve energy reliability and resilience against climatic events. EE is already relatively well known, though large savings from installation of more efficient lighting and air conditioning equipment remain. Newly adopted DG regulations, allowing simple net metering, enable relatively easy installation of solar PV systems, the price of which is now highly competitive in Costa Rica. For businesses and institutions consuming more than 3,000 kWh per month, DM and ES enable reduction of peak demand reduction and, in the case of ES, provide backup in case of supply interruptions.
To overcome knowledge-, business model-, financing- and supply-chain barriers, entrepreneurs can take advantage of modern DERs and offer innovative energy service business models. Rather than selling equipment for an upfront fee to customers who despite their expressed interest in modern DERs lack knowledge to make informed choices – energy service innovators can deliver an ongoing service, billing customers for the actual performance delivered.
DER strategies should be integrated
into grid planning and operations
In the period from 2014 to 2025, the state-owned electricity company Instituto Costarricense de Electricidad (ICE) plans to invest $740 million on the transmission grid, while the cost of operating the transmission grid is estimated at $478 million. In the same period, ICE expects peak demand to grow by 53%, from 1635 GW to 2508 GW (ICE, 2014). On the distribution level, Costa Rica’s electricity companies will need to reinforce existing and build new grid infrastructure to accommodate this increase in peak demand. However, reducing costs while maintaining reliability and integrating more variable renewable energy sources is a key challenge in the coming years.
Our research provides examples for how grid planners and operators around the world have successfully integrated DM, EE, ES and DG into their core practices, replacing or supplementing traditional practices. In planning for and executing grid reinforcements, Costa Rican grid operators should appraise these examples and consider how portfolios of demand-side DERs can be aggregated to provide flexibility and avoid unnecessary grid investments, reduce transmission and distribution losses, increase the capacity to handle variable renewable energy sources, and improve the reliability and quality of supply. In turn, this can enable substantial, system-wide cost savings that will benefit all stakeholders.
Proactive, explorative and customer-centric mass-learning
is urgently needed
If Costa Rican electricity companies want to prosper in an energy market increasingly influenced by DERs, they will need to overcome their own propensity to prefer the tried and tested over the new and innovative. While a conservative approach to planning and operating grid infrastructure has served well in the past, they need to engage in extensive piloting and experimentation with demand-side DERs. To do so, they should create environments where experimentation and rapid prototyping – and failing – is encouraged, tapping into the talents and ideas of their own staff and engaging innovative solutions providers.
Key to succeeding with DER innovation efforts is to go beyond technological factors and strategies as seen from the supply-side. Strategies should be developed that are attractive and engaging for customers and demonstrate how best to access demand-side DERs, whether that is through direct control or via incentives and flexibility market mechanisms. In this effort, electricity companies can build on the trust that most Costa Ricans say they have in their electricity supplier, and can develop more collaborative and transparent relationships with customers. Costa Rican citizens and companies want to get involved with energy issues but say that they need more information and support to do so.
From the regulatory and policy perspective, ARESEP and MINAE should implement regulations and incentives that permit and encourage innovation on behalf of the electricity companies and innovative service providers, with stringent measurement of outcomes.
Energy policy makers should shift focus
from the supply-side to the demand-side
The shift to a more distributed energy system requires Costa Rican energy policymakers to fundamentally re-think how to regulate the energy market to promote energy policy goals.
First, while demand-side DERs are controlled by consumers and their service providers, electricity companies have traditionally built and managed their own infrastructure. From a technical perspective, engineers prefer direct over indirect control, and from a commercial perspective, the regulated, cost-based tariff calculation methods give preference to capital expenditures (e.g., infrastructure investments) rather than operating expenditures, such as paying for demand-side flexibility services. International best practices suggest that third party DER aggregators can play a catalysing role in overcoming this barrier, operating as intermediaries allowing grid operators to focus on their core skills while at the same time providing consumers with innovative and attractive services.
Second, DERs scale in number, not in size. For Costa Rican electricity companies, which have relied on large infrastructure projects to secure ubiquitous electricity access and an almost completely renewable electricity supply, the small scale of individual DER installations may habitually seem inferior. This bias is evident in ICE’s long-term generation development plan, where each of the three strategic roadmaps are based solely on large-scale, traditional generation technologies (e.g., large hydropower or large natural gas power plants). Distributed Generation makes no apparent impact on the system by 2035 (ICE, 2014), which given the strong and quickly strengthening drivers for DG discussed above seems like a clear oversight.
Third, it is no longer safe to assume that consumers will have no choice but to accept the consequences of decisions that electricity companies make. A large-scale generation project, such as the 650 MW Diquís hydropower dam or the 600 MW of combined-cycle natural gas power plants considered in ICE’s long-term plan for power generation, will by ICE’s own estimations take 10 years to plan, construct and commission. Fraught with public opposition due to impacts on the environment, climate change (in the case of natural gas) and local communities, these projects would face significant risk of delays. Meanwhile, as the costs of DERs continue to come down, local supply chains develop, and consumer awareness and confidence increase, it is no longer safe to assume that there will be sufficient demand to pay for large-scale infrastructure when it finally materialises. If consumers perceive excessive costs on the supply-side, they will find their way to implement DERs and defect from the grid.
Fourth, as Costa Rica works towards its goal of reducing greenhouse gas emissions by 25% by 2030 compared to 2012, it will need to double down on its efforts to expand renewable energy generation and consumption. In addition to hydropower, geothermal and biomass, solar and wind will likely play key roles. As discussed throughout this report, DERs offer significant demand-side flexibility that can ease the integration of variable renewable energy sources on the grid.
Given the fundamental changes brought about by DERs, energy policymakers need to fundamentally rethink how decisions should be made, who should be making them, and how tariffs, regulations and incentives should be adapted to accommodate the changing nature of energy.
Energy markets are all different, however, so the most important recommendation is for Costa Rican energy policymakers and market regulators to dive into the details and gain experience with how demand-side DER strategies can contribute to developing a robust energy system while cost-efficiently meeting social, economic and environmental policy goals.