iPower: Strategic Scenarios

Innovation Toolbox:

strategic scenarios

The Innovation Toolbox Strategic scenarios By Ipower WP6 DTI - Danish Technological Institute

Content 6 AN INTRODUCTION 7 HOW TO USE THE TOOLBOX 10 INTRODUCTION TO SCENARIOS 11 HOW TO USE THE SCENARIO TOOL: 12 KEY DETERMINING FACTORS 13 DRIVERS 15 SUPPORTERS 18 COMPETITORS 20 DELAYERS 23 STRATEGIC SCENARIO FRAMEWORK 29 REFERENCES

An introduction Will the end users buy my new product or service? This question inevitably arises in every company developing and supplying new products – and it is not an easy question to answer. When those products are potentially smart grid oriented and targeted at domestic consumers that might be taking part in a possible future market of flexibility services, the question becomes even more difficult. With the uncertain future of the Danish smart grid, the “technology-push” driven development and the domestic consumers currently experiencing the maximum comfort of on/off electricity supply available 99.997% of the time, companies that don’t ask that question will be ill prepared for introducing their products and services to domestic consumers. In this series of innovation tools we provide knowledge, inspiration and process guidance for you to investigate and answer that question by yourself. To do that, we have created four user centered innovation tools each helping you to investigate different aspects of the question above. On top of that we supply two appendixes for further work: 1. Strategic Scenarios: which possible smart grid futures should my company prepare for? 2. Personas: What customer preferences should my products and services meet? 3. Customer Journey: What customer experiences do my existing products and services provide – and how can these experiences be improved? 4. Business Model Builder: What value propositions can my products and services offer – and how can my company profit from delivering that value? • Appendix 1: Nordic survey of smart grid projects: What have been studied and demonstrated already about domestic consumers in the smart grid? • Appendix 2: A guide to perform rapid and cost-effective tests of the business hypothesis behind your products and services. The tools have been developed as part of iPower, a ”Strategic Platform for Innovation and Research in Intelligent Power”, partly funded by The Danish Council for Strategic Research and The Danish Council for Technology and Innovation: www.ipower-net.dk.

How to use the toolbox The four innovation tools are interlinked, and we suggest you apply the following approach for using them in your company:

1. Preparation phase: a. Map your customer journey: If you have existing product(s) on the market, use the customer journey tool to collect and structure insights about the user experiences provided by your products and services. This process can take anywhere from a few weeks to half a year. If you do not have an existing product on the market, familiarize yourself with the customer journey concept as preparation for the strategic business modeling game b. Read and start using the Personas and the Scenarios: Familiarize yourself with the personas and the strategic scenarios, and begin using these for innovation activities and strategic discussions in the company. All the persons who are to participate in the strategic business modeling game should be familiarized with the personas and scenarios first 2. Business model building game : a. Assign and prepare a gamemaster: Prior to engaging in the business model strategic discussion game, assign a gamemaster to read and understand the rules, the tools and the knowledge contained herein. The key function of the gamemaster is to facilitate the game, and he/she should be prepared for this and for answering questions from the other participants. b. Play the game: Start playing the strategic business model building game, taking departure point in the business model game board and the rulebook provided. The scenarios, personas and customer journey will be included in the game when instructed, and as the nature of the game is iterative, you may revisit all 4 tools several times, or simply play it through once for a start 7

3. Going further Test the developed business model: With inspiration from the two appendixes provided, test the developed business model in either a demonstration project or by conducting several rapid, low cost tests of the initial and ongoing interest for your business model.

Introduction to scenarios Which possible smart grid futures should my company prepare for? The future development and adoption of smart grid in Denmark is not yet set in stone. Throughout the iPower project, the partners have uncovered several conditions for the realization of different versions of smart grid in Denmark. These conditions especially apply for a market of flexibility services, which is supposed to be a cornerstone in realizing the values inherent in a smart grid. To fully explore these conditions, scenario thinking has been applied to enable 80+ smart grid experts from 35+ partnering organizations in iPower to answer the following research question during AprilOctober 2013: What are the key determining factors for the future adoption of Smart Grid, including a market of flexibility services, in Denmark until 2025? Scenario thinking, especially the analytical, explorative and deductive scenario development method applied here, aims at developing probable futures for a problem with a relatively high uncertainty and longterm time horizon. The scenario thinking approach was originally developed by Rand Corporation in the 1950s and 60s and applied in modified versions by e.g. General Electric, Shell and Global Business Network. In brief the method consists of the following steps (Andersen & JĂ¸rgensen 2001; Heijden 1998): 1: Identify key determining factors for the problem investigated. This includes structural conditions, major trends and key events. 2: Assess each key determining factor for (a) significance for the problem investigated. (b) predictability. 3: Link and group the key determining factors into axes of significance for the research 10

question. 4: Provide intuitive estimates of possible futures based on the axes. While answering the research question using the approach above, the iPower consortium have found: 2 types of driving forces - Drivers, who may themselves drive the adoption of smart grid in DK - Supporters, who may support specific primary drivers to ease or accelerate the introduction and adoption of smart grid 3 types of challenges Barriers, who may themselves put end end to smart grid in DK: - Barriers, who may themselves put end end to smart grid in DK (none found) - Competitors, who may deteriorate the smart grid business case - Delayers, who may slow the adoption of smart grid 1 framework for the future adoption of smart grid in Denmark

How to use the scenario tool: Why use the tool in your company? This innovation tool introduces the key determining factors and the scenario framework within the future development and adoption of smart grid in Denmark may take place. The tool is a helicopter-perspective expert-based communication tool, to be applied to increase the quality and outcome of strategic discussion and decision-making processes in your company: “Ultimately, the point of scenario thinking is not to write stories of the future. Rather, it is to arrive at a deeper understanding of the world in which your organization operates, and to continue to use that understanding to address your most critical challenges […]. In every context, scenario thinking improves your ability to make better decisions today and in the future.” - Brie Ann Linkenhoker, Global Business Network

How to use the strategic scenario framework and key determining factors We suggest the key personnel influencing and exercising strategic decisions in your company all familiarize themselves with the key determining factors and the scenario framework, to create a common understanding – a language for strategic conversation. The scenarios are intentionally not presented in high detail, but instead on a more indicative level. This is both to lead your focus to the world around you – the key determining factors – but also to let your company explore and interpret each possible future according to the conditions applying for your own company. Good questions to ask yourself when discussing the company strategy: • Which future holds the best (business) opportunities for your technologies/products/services – what are those opportunities? • Which future holds the greatest challenges for your technologies/products/services – what are those challenges? • Which future do you believe in? – select that future as a point of orientation when developing the strategy of your company • (advice) Look out for developments of each key determining factor – it will indicate which future scenario the development is headed towards • (optional) What can you do, to affect the future development into a direction that suits you best? Once familiarized with the key determining factors and the scenario framework, use it in the business model building tool to scope and focus your business model innovation for the future you see most plausible. Find the guide for how to do this in the ”Rules and guide” book. The following sections present the key determining factors and the strategic scenario framework.

Key determining factors In the following section, each key determining factor for the future adoption of smart grid in Denmark is briefly described and most of them illustrated with quotes. All quotes originate from focus group interviews with iPower participants as the interviewees.

Drivers Green transition and increased electrification The first primary factor driving the smart grid development in Denmark is increased integration of renewables in the energy supply and electrification of the demand. This driver originates in political ambitions for a transition to an energy system supplied entirely by renewable energy sources. The iPower participants perceive the underlying motivation for these ambitions to be a combination of a transition to a low-carbon society and independence of fossil fuels imported from politically unstable regions or powerful associations with influence to monopolize the markets. The challenge creating this driver is that the increasing amount of renewables (primarily centralized wind power) supplying the electricity grid will result in a highly fluctuating electricity production, introducing new needs for services to balance production and consumption. At the same time, increased electricity consumption of an electrified transport sector and domestic heat pumps combined with decentralized photovoltaic electricity production will challenge the voltage control and introduce congestion management problems in the distribution grids. ”It is the desire to reduce CO2emissions and to become independent of the OPEC-nations and oil, that makes us go for renewable energy, [...] this drives us into wind turbine based electricity production [...]. The socioeconomic best thing to do with the electricity produced by wind is to consume it ourselves, rather than sell it to Germany and other places. Then we have to invent these devices to use the electricity. Electric vehicles and heat pumps changes consumption from a petrochemical sector to an electricity sector, they need the electricity produced by the wind turbines [...]. Here comes the

problem: All these new consumption devices create some [consumption] fluctuations we can’t deal with, and they create some expensive grids, where we have to make investments. [...] We simply need the customers as partners in the future, to energy when it is produced.” Business potential for Danish companies The second driver regarding business potential for Danish companies, appears to represent two viewpoints: (1) that we must invest heavily in smart grid development and demonstration in Denmark to establish an exemplary home market as a basis for export and; (2) that the participating companies in iPower already see business potentials or perhaps even already export smart grid technologies to other markets with weaker grids than Denmark and therefore a better business case for technologies for intelligent control of decentralized power consumption. This driver appears to be the main driver behind industry investments so far, but it does not in itself improve the business case for a market of flexibility services in Denmark. “In Denmark we can capitalize and create jobs. We can be leading and we have a very strong grid already. We should be aggressive. We can demonstrate. The challenge in Denmark is that there are no incentives”. “In the US the situation is different, the grid has always been privately owned and that means the grid is so thin. They had to run it optimally and make some money, so they didn’t roll out any cables without ensuring it paid off. Therefore they have severe bottle neck problems from an economic point of view, not from a renewable energy point of view. You can say they do it for the same reasons as we do: to avoid 13

investments in reinforcing the grid, but the driver behind is actually two different things.”“We have opportunities for new businesses.” “Aggregation of controllers and forecasting are definitely already business areas.”

Supporters Energy Efficiency as a beachhead for smart grid Energy efficiency is considered a supporter, as it may provide a beachhead for introducing smart grid technologies and flexible consumption. Energy efficiency initiatives and technologies are known and to a certain extent requested among both industrial and domestic consumers. By offering a combined program of energy efficiency initiatives and flexible consumption solutions, more consumers may buy into flexible consumption. Especially for the private consumer, for whom it is difficult and/or irrelevant to distinguish between savings from lower energy consumption or consuming at the right times, a bundling of energy efficiency and flexible consumption is expected to make sense, especially if it does not lead to loss of comfort. “I think there are energy efficiency possibilities compared to how a heat pump is operated today. It may be a good business for people to get some surveillance [on the performance of the heat pump] set up, and then there’s sort of established a beachhead to start external control, because the signal back and forth is already established. At first, the owner gets an opportunity for optimizing the heat pump, which holds some value in its own.” Increased penetration of ICTs The increased penetration of information and communication technologies (ICTs) is also considered as an important supporter for the adoption of smart grid. By relying on existing and already adopted platforms in both industry and domestic homes, ICTs are expected to drive down development costs and reduce the need for investments. Furthermore, utilizing well-known platforms is expected to ease the introduction of technologies to facilitate and manage flexible consumption.

“Key players – telecom companies, TDC, Telenor – are entering this field right now. From TDC [Danish telecom provider, offering entertainment services via the telecom subscription] you can buy a package with burglar alarm, also containing an app for smartphone, where you can turn plugs on and off. They also have a gateway. It’s very easy to build upon such a system. For instance demand response.” Supporters: Open platform for new services An open platform for new services is considered a supporter – or almost as a prerequisite – by several iPower interviewees. Apart from containing the standards for communication protocols etc., to prevent proprietary solutions developed in silos from dominating the market, the platform is described as a means for lowering entrance to the smart grid market by allowing technology-developing companies, fleet operators, aggregators and the like to develop competing solutions for the same platform. Several interviewees describes the platform it as ‘the app store for smart grid solutions’, with references to both Apple’s App Store and the American Green Button initiative . The latter enables electricity customers to securely download their own energy usage information from their utility, and apply it to a range of web and smartphone tools to make more informed energy choices and procure tailored services. “It is very important to have an open platform for communication. It is important to have new services to customers – and it is closely related to having standardization: an open architecture.” ”In american context there’s something called ”Green Button” where you have the right 15

to your own consumption data and can retrieve them or send them to someone offering to do something about it, and that’s stimulating: Any open platform allowing access to anyone offering to develop something: that stimulates growth, that’s what you know from Apple.” Supporters: Non-monetary value creation The iPower participants finds various nonmonetary value creation opportunities as means for improving the smart grid business case(s) and thereby supporting adoption of smart grid. These opportunities are closely related to the green transition driver, although more conventional business ideas of comfort and convenience, related to the ambiguous smart home concept, also appears. Regarding the industrial consumers, non-monetary value was expected to derive mainly by catering to corporate social responsibility initiatives, for instance by reducing electricity consumption at times when CO2 emissions from the electricity mix is high. “For us there is also value in regards to the whole CO2 footprint area that we work with. So technology that can reduce that is important. At the moment you cannot reduce the CO2 footprint by buying electricity from a windmill for example. It is only in the way you manage your energy.” For the domestic consumers, the non-monetary value creation opportunities includes two aspects: 1. Offering smart grid solutions in combination with convenience products: “…comfort, security, safety – it’s that kind of present values the user wants […] it must work, it must be easy, it must be safe and it must be good.” 2. Offering the consumer a way to ‘do the right thing’ for the environment as well 16

as society, either as an individual or collective effort. These value propositions may be amplified by co-ownership of distributed energy resources and diffused through social media: “It has turned out this environmental driver is pretty big among the population. This [smart grid] could be something which creates another consciousness about renewable energy and CO2 emissions [...] Maybe we can create a popular movement to save the planet – it’s big words we’re using now right? […] Maybe we could create club-based companies, where some use electricity when others are able to produce it [...]. Maybe we are inventing a technology with smart grid, which can facilitate these things. It may be a good future, actually, to allow this.” ”[About the social medias:] You can unify around a common cause for a shorter period of time, binding in another way. You can be very active about this for some weeks on Facebook, where you post your friends over with stuff about polar bears and then it disappears again for a while. This is not the kind of things that motivate routine in everyday life.” Responsible behaviour might also be encouraged through gamification thus stimulating people’s playfulness and creating lasting incentives for flexible consumption. “There’s also an opportunity in the penetration of handheld devices and mobile units, which makes boring things like energy efficiency in your own home or interacting with the grid easily accessible in some way, where it stimulates your playfulness – and people are playful. But to make it so it really works and is exciting for a longer period of time, I don’t know about that.”

Competitors Many iPower interviewees express skepticism as to whether there is a ‘business case’ for the smart grid in Denmark. “The engineering part of the smart grid gets a lot of attention, but what about the socio-economic aspects? I doubt if the economic side is even there. So the problem is whether just to install smart grid technologies and get a system that functions well or only install smart grid to the amount where the business side is still there?” The notion of a ‘smart grid business case’ can be further specified as to whether flexibility services can compete with alternative solutions on the electricity markets to solve the expected balancing and congestion management problems caused by the green transition to renewable energy sources. The identified competitors all offer alternatives to flexibility services on the electricity markets, but also comprise equally important partial solutions to the problems that smart grid may contribute to solving. These competitors risk deteriorating the business case for flexibility services on the electricity markets, but they do not compete with e.g. heat pumps or smart home technologies often associated with smart grid, unless the business case of these technologies depends on selling flexibility services. The identified competitors are related to the problems they solve. TSO balancing production and consumption through energy exchange and central power plants The TSO can increase energy exchange capacity with neighboring countries to balance production and consumption, and exchange capacity is expected to increase. Several of the iPower interviewees mentions the energy trade with Norway, Sweden and Germany as very significant. However, this path also faces limitations due to the lack of capacity in the German grid, due to shared 18

weather conditions with Northern Germany and due to increased demand for the limited supply of hydropower and nuclear power in other countries. “With a scenario with a lot of wind energy there should be more value also for consumers […] but the problem is the connection to Norway, which will make the value and the point of Smart Grid less valuable.” The TSO can also buy ancillary services from central power plants to balance production and consumption. Presently the capacity is expected to decrease, but political intervention may change this trend by making it profitable to ensure back-up capacity or by providing it from publicly owned facilities. If this balancing capacity will increase and perhaps even become cheaper in the future, it will limit the need for smart grid to exposed areas in the distribution system. However, all European projections expect less capacity at the central power plants. Avoidance of bottlenecks through distribution grid reinforcements The DSOs may choose to reinforce the distribution grids to increase capacity and avoid congestion management problems. This will reduce or even eliminate the DSO’s need for flexibility services. “…we can easily do it without smart grid. All we need to do is to dig a lot of aluminum and copper in the ground, and then there are no longer any problems. We are balancing an edge where this is almost the best solution, economically.” “It’s no business for anybody but the DSO to put more copper in the ground.” Smart energy and large scale energy storage becomes competitors in the longer term Although smart energy is yet a concept at

a very early stage, the prospect of efficient conversion between energy sources and energy carriers (e.g. electricity to gas) as well as improvements in energy storage technologies may end up competing with flexibility services in the electricity network. “…if we can store 100 hours of energy – and we can transport it – then we can have 100 % of renewable penetration. The central component is 100 hours of storage – then we can do anything. We already have storage – we need to unleash the storage.” ”The scenarios should be about smart energy in the long term”

Delayers The problems are not yet here One of the most important factors delaying the adoption of smart grid in Denmark is that the problems, smart grid is trying to solve, have not yet emerged. Denmark has a very well-developed electricity grid with extensive connections to neighboring countries, as well as a distribution grid with ample capacity. The penetration of heat pumps and electric vehicles has not occurred as rapidly as anticipated, thus postponing the congestion management and voltage control issues in the distributions grids. On the transmission system level, Denmark has recently achieved a new world record by having 57,4% of the electricity supply covered by wind power throughout December 2013, handled with the traditional balancing means of electricity trading with neighboring countries as well as ancillary services from central power plants. “We don’t really have the problems that we are talking about.” “From the perspective of the normal Dane, we have a smart grid: when I push the button I have the light. Quite smart. Why change that?” Establishing a market with new actors with unclear roles A delayer related to both the above-described lack of problems and the competitors is the challenge of establishing the roles and business cases of all the different actors in the smart grid, especially in the startup phase. Both existing and new actors are taking part in the development of the system with expectations of a (high) return on investment, but several iPower interviewees argue that there are too few values in proportion to the amount of investments needed to build a market with all its existing and new actors. Examples of these new actors include the aggregators, whom aggregate the flexible consumption from smaller distributed energy resources, and bid them into a market of flexibility services, deman20

ded by the TSO, the DSOs and the balance responsible parties. “There are too few values in proportion to the amount of investments needed to build a market with all its players, aggregators or the like. There is simply not enough money in it.” Rules and regulations are not smart grid ready Some iPower participants points out that regulation and market design is lagging behind. The rules and regulations on the electricity markets seem to favor larger and more complex technical units, with examples given such as the 10MW minimum bid size to enter the regulation power market, which excludes bids from all but the most aggregated of the smaller units. Furthermore, the lack of variable time-of-use tariffs provides little incentive for flexible consumption, as the electricity price paid in Denmark primarily consists of tariffs. “One of the problems is that when you look into the things you need to be able to handle – all the rules and regulations are written for big power plants. It is necessary to change the rules and regulations to match the new circumstances. And it shouldn’t be the same rules for all – for big and small players.” A further unresolved problem limits the possibilities for DSOs to invest in flexible consumption rather than grid reinforcements: Dynamic tariffs, varying in both time and place, will discriminate the customers by increasing the price in one geographic area with capacity problems, but not in neighboring areas without capacity problems, contrary to existing tariff rules. ”Consumer-wise it is complicated to create dynamic tariffs that vary in both time and place. What if you bought a house in an area where the prices

are always high, because some part of a company decided to do something about the bottleneck problems in that area?” Development of communication standards is too slow Lack of standardization frameworks and communication standards may delay the adoption of smart grid. With examples such as the IEC 68 150 aiming at substations, standards seem to favor larger and complex units, as the technical implementation of IEC 68 150 is so complex that it is almost impossible in consumer products such as PV inverters and heat pumps. Standards for smaller units are under development, with Open ADR as one example, but they are not yet fully ready for implementation. Proprietary solutions may circumvent this, but will on the other hand impede competition and drive up costs. “Standardization within this industry takes forever. If you compare to what is happening to internet, you know, a new standard will establish itself within a few months or half a year, maximum. Within the smart grid, it takes 5+ years to get it through the standardization organizations.” Security and reliability issues may discourage utilization of smart grid solutions Security and reliability issues are also possible delayers. From an industry perspective, the core function, quality and planned deliveries of the electricity consuming processes cannot be compromised by selling flexibility services, especially if the business case for selling flexibility is relatively low. From a domestic perspective, the reliability of household chores cannot be compromised and the billing based on smart systems must be meticulously correct. Privacy is also an issue, although it seems less important compared to security and reliability. From a grid

perspective, the traded flexibility services must be delivered as promised, or the resulting balancing or voltage control problems may result in penalties from other actors in the grid and/or even blackouts. “If you start sending out bills based on some system, the credibility of the system is important […] and then there’s the issue of the security itself: Will your neighbor be able to intrude and turn stuff on and off or can we ensure encryption of it all?” “Security and privacy is often grouped together when somebody tries to say something about it, but when you look closer into it, it’s mostly security they write about: What can be controlled and shut down. But the privacy issue I haven’t seen very detailed, so I would like to know if it is just some principal concern or if it is a true concern derived from some diffuse skepticism caught in broad studies. Who should pay for the imbalances in the system? Who takes the cost? Consumers, aggregators, government or somebody else? Is it a question of who have the responsibility?” – WP1

A system solution with an unclear definition Furthermore, the ambiguous but extensive Danish perception of smart grid could pose a delayer in itself. When smart grid is perceived as a relatively unclear but very extensive system solution with a multitude of actors, technologies, products and services all integrated and heavily dependent on each other, the development and adoption is exposed to a chicken and egg dilemma: Which elements of the system must be defined, developed and implemented first, and how can they be implemented on commercial terms if they depend on yet-to-come conditions? To several interviewees, it seems as if the Danish 21

smart grid is ‘all or nothing’. “It is too broad a concept and it is difficult to use. The ideas are good to utilise the fluctuating energy production, but there is a problem between the use of the word and practice.” “The challenge is to look at the world and ask if it turned out the way it was thought to do a few years ago – the smart grid definition might need to change or the expectations of what it can and what it should look like may have to be re-evaluated.” ”It’s a question of what we are talking about ‘must succeed’. I believe the agenda will have changed in 10 years. I believe we are talking about smart grid in a different way and with a different agenda than what we do at the present time.”

Strategic scenario framework

Green Transition & Increased electrification The horizontal axis â&#x20AC;&#x153;Green Transition & Increased Electrificationâ&#x20AC;? indicates how many challenges will be created, which smart grid may contribute to solve. The axis is primarily based on the integration of renewables in the electricity supply and electrification of the demand side and includes the factors: Key determining factor

Importance for the adoption of smart grid in Denmark

Predictability

Driver: Integration of ren ewables: Expansion of rene wable wind power and PV solar panels.

High; considered as a pri mary driver for the Danish smart grid by causing balan cing problems for the TSO.

Low; The Danish politi cal targets are only adopted until 2020 and the responsibility for achieving the EU targets for 2030 remain unclear.

Key determining factor

Importance for the adoption of smart grid in Denmark

Predictability

Driver: Electrification of the de mand: Penetration of elec tric vehicles and heat pumps.

High; considered as a primary driver by causing congestion management problems for the DSOs.

Low; The market penetra tion of these technolo gies does not meet pre vious expectations, which are currently being revised down.

Supporter: Carbon price changes (factor added at a scenario develop ment workshop).

Medium; may improve the business case for consumers, who are able to consume electricity when the CO2 emis sions from the electricity mix is low.

Low; so far the quotabased system has not been effective, but new political targets could increase the effect.

Smart Grid Readiness The vertical axis “Smart Grid Readiness” is an expression of how conventionally or “smartly” Denmark chooses to solve the challenges imposed by the green transition: In the conventional manner the Danish energy system may balance with electricity exchange and ancillary services from central power plants and avoid congestion management problems with reinforcements of the distribution grids. In the ‘smart’ manner, there is a greater utilization of flexibility services from decentralized electricity consumption units to solve those challenges. Factors included in this axis are: Key determining factor

Importance for the adoption of smart grid in Denmark

Predictability

Competitor: TSO balancing via interna tional electricity trading.

High; using energy exchange for balancing purposes will reduce the TSOs demand for flexibility services in the smart grid.

Low; Energy exchange capacity is planned to increase, but if neigh boring countries im plement renewable energy as well, the exchange possibilities may be reduced.

Competitor: TSO balancing through centralized power plants

High; if centralized power plants can continue to provide ancillary services for TSO balancing, the competition for flexibility services increases

Medium; a decrease in the num ber of centralized power plants is expected

Key determining factor

Importance for the adoption of smart grid in Denmark

Predictability

Competitor: Grid reinforcements by DSOs instead of congestion management

High; if the DSOs have a better busi ness case by reinforcing the grid, much of the business case for flexibility services will deteriorate

Low; The business case for the Danish DSOs appear to be quite marginal between smart grid and grid reinforcements

Competitor: Smart energy and large scale centralized energy storage

Low (by 2025); storage and energy con version technologies are not likely to have achieved an efficiency to compete with flexibility services by 2025

High; considering the historic development of storage techno logies, radical development within a short time horizon is unlikely

Supporter: Integration of energy efficiency and flexible consumption.

Medium; may prove important for the business case and for recruiting flexible consumers.

High; energy efficiency initiatives can be expected to continue in Denmark, and bundling of energy efficiency and flexibility is obvious.

Supporter: Non-monetary value creation (environmental and com fort aspects).

Medium; may prove important for the smart grid business case, especially for domestic consumers.

Medium; the environmental be nign tendencies behind this sup porter are uncertain, while dome stic comfort requirements should increase.

Supporter: Increased penetration of ICT.

Medium; smart grid business cases will improve with increased ICT penetration, but ICT cannot drive smart grid adoption in itself.

High; uptake of ICT in society can be expected to increase

Supporter: Open platform(s) for new services.

Medium; considered important for smart grid success, but it cannot itself drive smart grid adoption.

Medium; if the need for the platform is unanimously present, ‘someone’ will take the initiative to develop it.

Delayer: Lack of ‘smart grid ready’ rules and regulations.

Medium; a general consensus exists in the consortium that several regulatory aspects are not favorable to smart grid.

High; regulatory aspects should be changed to accommodate smart grid, if it proves to be the socioeconomic best solution.

Delayer: Lack of open communica tion standards.

Medium; the development of commu nication protocols are in progress, albeit slow.

High; as smart grid has better business cases in other regions, ’someone’ will develop standards.

Key determining factor

Importance for the adoption of smart grid in Denmark

Predictability

Delayer: Security and privacy.

Medium; security threats could be of importance especially for industry and domestic consumers alike.

High; considering past develop ment in security technologies it should be possible to mitigate threats.

The original vision behind the iPower project is located in the “smart green” quadrant, and are thus dependent on a combination of continued green transition and electrification combined with a greater utilization of flexibility services rather than “conventional” means for balancing and congestion management. A scenario team consisting of select iPower participants has outlined a series of indicators for each quadrant, concerning both key events, which indicate which future the development may lead to, but also containing characteristics of each possible future. Smart Green The “smart green” quadrant is characterized by underlying factors such as continued concern for the environment combined with continued high ambitions to develop and integrate smart solutions. Key events include political adoption of and individual commitment to ambitious European 2030 targets, an international climate agreement and continued support to the current ambitious Danish climate and energy targets. To improve conditions for “smart” solutions for the challenges posed by enactment of these political targets, smart grid standards and variable tariffs are implemented. These initiatives enable the TSO and the DSOs to utilize flexibility services for balancing and avoiding grid reinforcements, thus developing a market where multiple aggregators trade flexibility from large and small DERs. Whenever industrial or domestic consumers invest in new electricity consuming devices, they are “smart by default”. The green tran26

sition enables aggregators to introduce value propositions for consumers based on both monetary benefits, comfort increases and environmental benign actions. Conventional green The “conventional green” quadrant is indicated by similar continued environmental concern, while the ambitions for “smartness” are lower, instead relying on conventional strategies for solving the challenges caused by the green transition. Politically, the targets for the green transition remain high, but smart grid standards and support schemes for flexible consumption favor larger, semidecentral DERs. Only few aggregators exists, and all focuses on larger DERs, while industry and domestic consumers go for “conventional” energy efficiency. Conventional black The “conventional black” quadrant is characterized by a reduction in the political energy and climate targets of both the EU and Denmark, maintaining status quo for the Danish electricity grid, which easily handles fluctuations from renewable energy as well as a minor electrification of the demand side with conventional strategies. Therefore, no need for flexibility services will emerge and no political support schemes will be introduced to improve the conditions for smart DERs. Smart Black The “smart black” quadrant is a rather surprising result of the process of combining the axes. Driven by export potential to other

regions with other drivers for a smart grid, ambitions remain high to develop smart solutions, while reduced concern for the environment leads to a significantly reduced business potential for flexibility services in the Danish electricity grid. Smart grid standards are developed and implemented by standardization organizations (because they are needed in other regions with other smart grid drivers), while only the largest and most flexible DERs are aggregated and bid into the existing power markets in Denmark. The industrial consumers go for energy efficiency rather than flexible consumption, while the domestic consumers go for a smart home â&#x20AC;&#x201C; not for selling flexibility services, but for comfort purposes.

References Andersen, P. D. & B. H. Jørgensen (2001). Grundnotat om metoder indenfor teknologisk fremsyn. (The scenario method is briefly introduced and compared to other technology foresight methods). Heijden, K. (1998). Scenario Development. Chapter 12 from the book: ‘Scenarios – The Art of Strategic Conversation’. John Wiley & Sons, p. 219-272 (An extensive description of the method and use hereof).