presentation - 12th IAEE European Energy Conference

Socioeconomic approach for the allocation of smart-grid
investments
S. Scarpellini, E. Llera , A. Ortego , M. Marco
Edificio CIRCE / Campus Río Ebro / Mariano Esquillor Gómez, 15 / 50018 ZARAGOZA
Tfno. (+34) 976 761 863 / Fax (+34) 976 732 078 / web: www.fcirce.es / email: circe@unizar.es

Index
Sumario
1. Introduction
2. Costs and benefits of the smart grids
3. Case study
4. Conclusions

Introduction

Background
• It is known that developing smart grids can help reach the
European Union “2020 energy targets” moving towards new
horizons like 2030.
• It is common to find answers related to the technical aspects of
smart grids but some questions like who will pay for converting
the existing grid remain to be answered. Due to high up-front
costs, smart grids can be perceived as high investment despite
its cost effectiveness in the life cycle.
• Its implementation overcomes not only technological but
economic related issues.

Scope
• Proper allocation of capital costs should take into account the
particular interest of the stakeholders:
o Distributors can see the capital upgrades reduced.
o Consumers can obtain value-added services.
o End-users can become electricity generators and obtain some income.
o The “territory” can reach its objectives of sustainable growth, energy
security, reduction of environmental pressure and social impacts.
• This paper documents the methodology, key assumptions and
results of a quantitative evaluation or the investment needed
(costs) and a preliminary estimation of socioeconomic benefits
of implementing a SG in order to demonstrate that public
support could compensate to some extent the costs allocation to
a home user.

Costs and benefits of the smart grids

Costs for SG implementation
• The implementation of a smart grid covers a wide range of
costs, depending on the definition of what smart grid is.
• Costs considered in this paper are:
o the adaptation costs of the transmission and distribution infrastructure to
integrate distributed generation
o costs to succeed full customer connectivity by means of smart-grid ready
appliances and devices
• Costs NOT considered in this paper are:
o costs of generation
o costs of grid expansion to add renewables and higher electricity loads.

Components to install in a smart grid
Table 1)

Main benefits
It is fully accepted that implementing Smart Grids on a large
scale would lead to some benefits that can be categorized into
the following types:
• Power reliability and power quality
• Energy efficiency benefits
• Environmental benefits
• Economic benefits

Assumptions of this approach
• The starting point of this paper is the idea that costs of the grid
might rise, but those costs will be offset by “savings” elsewhere in the
system.
• While the interest in the smart grids by private stakeholders mainly
focuses on a cost-benefit analysis, the Public Administration is
concerned with other aspects such as energy security; GHG gas
emissions reduction as well as social benefits, for instance
employment or technological development.
• The consideration of these externalities in economic terms could
justify the participation of the Administration into the costs of the SG
implementation either directly or through economic incentives to the
private sector.

Case study

Case study description
• The city of Zaragoza is in a strategic enclave for the location
of companies for both production and distribution.
• Data for the analysis:
o Number of homes: 249 898
o Population: 674 725
o
Population density: 692.94 inhab./km2
o Average consumption of electricity per household: 4 000
kWh/year
o Number of cars per 1000 inhabitants: 426.5
o
o
Number of substations of the electricity distribution company in
Zaragoza: 266
Number of transforming stations of the electricity distribution
company in Zaragoza: 9 062
• Grids of the electricity distribution company of Zaragoza:
o
o
o
High voltage (Rated voltage ≥ 36 kV): 5 165 km
Medium voltage (1 kV ≤ Rated voltage ≤ 36 kV): 12 177 km
Low voltage (Rated voltage ≤ 1 kV): 11 783 km

Study variables
Number Variable Unit Model inputs
1 Number of inhabitants Units 674 725
2 Length of distribution grids m 11 783
3 Length of transmission grids m 5 165
4 Number of substations and transforming stations Number 266/9062
5 Costs for transmission grid €/m 213
6 Costs for distribution grid €/m 51
7 Costs per user €/inhab. 93
8 Number of homes Units 249 898
9 Project execution time Years 28
10 Rate of investment deployment %/year see scenarios
11 Rate of acceptance of smart applications by users %/year see scenarios
12 Average energy consumption per household kWh 4 000
Due to the lack
of data of
specific costs at
local level,
bibliographic
data were used
Table 2)
Related to the grid size
Related to adaptation costs
Related to the temporary implementation of the technology
Related to social behavior

Total investment for a smart grid in Zaragoza
• A variability range of ±15% for estimated investment was
taken into account in anticipation of different initial state of the
transmission and distribution grid.
• The Last column shows the sharing of the total costs between
the three parts of the grid.
Table 3)
Minimum (€) Maximum (€) %
Transmission grid 439 772 261 € 594 986 000 € 44%
Distribution grid 500 456 015 € 677 087 550 € 50%
End-user 53 337 011 € 72 161 839 € 5%
TOTAL 993 565 287 € 1 344 235 388 €

Scenarios
Figure 1: Total investment to be made in
the smart grid in Zaragoza (authors'
compilation)

End (home) –user level benefits
• The most direct benefit is the possibility to balance their
energy consumption with the real-time supply of energy
reducing electricity use.
• In addition, forthcoming variable pricing will provide consumer
incentives to install their own infrastructure that supports the
Smart Grid. In fact, customers will not benefit fully from a
smart grid until the demand-side of the market is an active
participant.
• A direct reduction of 6% in electricity consumption, with a
range of 1% to 10%, can be achieved. This reduction has a
direct impact on the electricity bill.
• 4 000 kWh/year x 6% X 0,16 €/kWh = 38 €/year per home

Cost-benefit analysis
• Cost allocation: T&D companies are going to put the costs into consumer rates
according the consumed electricity and total costs corresponding to the end-user
Minimum (€) Maximum (€)
Transmission grid 476 € 352 €
Distribution grid 542 € 401 €
End-user 289 € 213 €
Total 1 307 € 966 €
• If the only way to recover the investment is from the electricity savings, this means
pay-back ratios from 25 to 35 years for private users, well above those obtained
by means of other efficiency implementations.
• Support mechanisms have to be offered in order to assume the costs of adoption of
new infrastructure related to smart grid deployment if 2030 targets want to be met.
The next section estimates some global benefits aiming to show that public incentives
could be totally recovered if CO 2 emission costs are considered, as well as other
costs such as, for example, job creation and energy security related aspects.

Territory-level benefits
• The most suitable energy plans with effective energy policies have to be
developed as well if smart grids are considered a key factor for the global
energy sustainability.
• Smart grids are going to have a positive impact on the three dimensions of
the sustainable development. Among all, three kinds of benefits have been
selected for its study:
o Reduction of CO 2 emissions
o Reduction of energy imports
o Job creation

Externalities analysis
Reduction of CO2 emissions
Percentage of CO 2 reduction 20%
Emissions 0.50 kg/kWh
Cost of 1 ton CO 2 7.00 €/ton
Total CO 2 avoided 99 959.20 ton
Savings per CO 2 reduction 699 714 €/year
Reduction of energy imports
Percentage of electricity savings 6%
Cost of GWh imported 0.045 M€/GWh
Savings per reduction of energy imports 2 698 898 €/year
Job creation
JOB CREATION 4200 jobs
Annual Jobs (15 years of deployment) 280
National Minimum Wage 641,4 €/job
Savings per stable jobs 2 155 104 €/year
5 553 717 €/year
• The above induced savings could be added to those obtained directly in the
particular electricity bill. Only taking into account these three factors, investments
allocated to the home sector could be recovered in 15 to 20 years.

Conclusions
• The development of the grid requires significant investments to
adapt and prepare the current systems for the new requirements.
Thus investment in smart grids can constitute a new economic impetus.
• End-users should not perceive a huge increment in the electricity bill
if social demand of the applications is considered to be a key factor
for the SG development.
• At the beginning, policies and actions stated by the Pubblic
Administration need to be implemented beforehand to boost the
demand and to favor the roll-out of this technology based on the
improved energy sustainability they champion.
• Considering externalities in economic terms could justify the
participation of the Administration into the costs of the SG either
directly or through economic incentives to the private sector.

Thank you
Tel.: [+34] 976 761 863 · circe@unizar.es
www.fcirce.es
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