DSO and its effect on distributed generation

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The energy transition has brought several challenges to the operation of transmission systems, especially the distribution system. In transmission, load monitoring by generation agents has become more difficult due to the intermittency of primary sources, specifically wind and solar.

With the difficulty in predicting the dispatch of these sources, traditional hydraulic and thermal generation had another factor of uncertainty in the composition of the load-generation balance.

This uncertainty has also hampered the transmission grid's ability to handle these uncontrollable generation fluctuations, creating significant fluctuations in flow and voltage. These variations modify pre-fault system conditions, expanding the range of scenarios available for grid stability and reliability studies.

Going back in time, with the deverticalization that occurred in the nineties, the management of the transmission network was divided into network owners (transmitters) and network operators (ISO – Independent System Operator also called TSO – Transmission System Operator).

The idea was to separate the two functions to bring neutrality to the systemic operation of the network and a certain tranquility in the construction of the electricity market where the ISO would be a neutral body, freeing up access to generation and consumption agents.

Some countries maintained ownership and systemic operation within the same company, such as England, which pioneered the restructuring process. However, last year, the country changed this structure by creating the NESO (National Energy System Operator), and the former NGC (National Grid Company), which performed both functions, ended up retaining sole ownership of the assets.

Brazil, since the Law 9648 of 1998, had already established the ONS (National System of National Electricity), which manages the systemic operation of the transmission grid and defines the dispatches of the predominant power plants at the time—hydroelectric and thermal. With the significant entry of distributed generation, batteries, and electric vehicles into the distribution system, this grid began to have characteristics similar to transmission systems, which until then had only operated loads.

Distributors were the major collectors of energy during transmission and distributed it to end consumers. With this function, radial systems, represented by primary and secondary networks, made the system simpler in terms of measurement, protection, and control because the flow was unidirectional.

Most distributors and distribution cooperatives owned their grids and operated the system to deliver energy. With the introduction of power injection at various points in the grid, distributors began to face significant challenges, with flows varying significantly and in opposite directions.

It is clear that the costs of installing SCADA systems, metering, remote controls, etc., would be included in the distributors' remuneration base and paid by all consumers. Some of the more concerning points relate not only to the DSO (Distribution System Operator)'s systemic operation of the grid, but also to the inclusion of the definition of Distributed Energy Resources (DER) dispatches, which differs from the guidelines of other countries.

The urgent need for the creation of the DSO would be to seek controllability to shut down DGs and share with the curtailment, without waiting for consumers to decide on their generation in the process of addressing excess solar generation at midday. In more advanced countries, the wholesale and retail markets have better signaled prices to serve as a reference for agents' dispatch decisions.

In the case of Brazil, the problem already occurs in transmission where the ONS ends up dispatching the hydraulic and thermal plants because the price signal through the PLD is only used in settlement in the commercial environment with little adherence to physical reality.

Another point of concern is that the DSO belonging to the distributor may hinder greater autonomy for DG agents who will belong to the DER class. Market neutrality can be circumvented, especially when the distributor is given full control over the dispatch of these resources.

Distributors can often exert market power when other companies operate in DG, for example, controlled by the same business group. Creating a DSO that is independent of the distributor and therefore more neutral becomes essential.

Communication between aggregators and/or retail traders representing low- and medium-voltage customers with the ONS should be considered, including for ancillary services such as demand response. The inclusion of direct communication with the TSO, which was abandoned in the PSR-Dimon work, is another concern.

In Germany, where there are more than 620 distributors and cooperatives, there is a direct connection with the four existing TSOs, meaning aggregators (VPPs, load aggregators, etc.) are actively involved in system solutions. Network service provision through RED aggregators can be obtained via bids in a dynamic price market established day-ahead and intraday.

The aggregator's role should incorporate functions such as providing ancillary services to the DSO and TSO. However, it is important to emphasize that the current model of the Brazilian electricity sector, with energy price signals derived from the PLD, which represents a simulation of energy optimization, fails to produce accurate energy price signals for distribution.

If hourly and locational energy pricing is deficient, what can we say about ancillary services? Proper price signaling represents the best communication channel, enabling better decision-making among distributed entities. Pricing new products and services makes the sector's dynamics less dependent on centralized decisions, improving the response of DERs.

In the US, the California, Texas, and PJM markets, despite having a single bidding zone each, have nodal prices that are calculated hourly (in ERCOT, prices are calculated every 5 minutes) through a power flow program that incorporates transmission constraints.

This dynamic allows the problem of generation capacity and the network to be internalized in the price of energy, minimizing the need to create new products, as occurs in the markets of England, Germany and Australia.

It is necessary to revisit the Brazilian model and propose changes such as improvements in energy price signals as well as the provision of “ancillary services” where aggregators can act by offering control over DERs.

Since the transposition of an external model to Brazil must comply with regional requirements and the characteristics of each country, an adaptive model with a transition period must be urgently proposed, as it is not possible to maintain the existing centralizing characteristic when there is a significant increase in distributed resources.

It's impossible to control the operation of a home's battery from a single operations center. Today, for example, the ONS (National Health System) already offers a demand response service, which is receiving little uptake from agents precisely because the opportunity cost, when compared to energy prices, doesn't offer satisfactory profitability.

In this case, there is no correspondence between the cost of providing capacity in the transmission network and what the suggested demand response in the distribution system could provide.

The figure of load aggregators and VPPs is already well known in countries where energy price signals are dynamic or commonly known as “real-time pricing”.

These prices are better than the "time-of-use" prices proposed in the 1970s. As in England, Germany, Australia, Spain, and the United States, the retail market has existed for over 20 years. Many companies have been created to act as load aggregators, seeking greater energy efficiency in residential, commercial, and small industrial sectors.

One example often cited in the media is OCTOPUS, which currently has 9 million customers in Texas, England, and Australia. This company operates "behind the meter," optimizing the use of consumer equipment to reduce energy bills through hourly price signals.

An advancement of these aggregators is to incorporate control of batteries and bidirectional chargers for electric cars, becoming known as RED aggregators.

Another controversial, yet essential, point is the change in the tariff structure used in the distribution segment. This change has been announced for over two decades with the restructuring of the Brazilian electricity sector and was recently the subject of disagreement in Congress when the government, in Provisional Measure 1.300/25, incorporated the command that ANEEL incorporate multi-part tariffs in low voltage.

We are still living in a structure designed in the seventies and with the sector reform that occurred in the nineties promoting the deverticalization of the sector, the concepts of tariff design have changed and unfortunately we continue to use this structure to build the TUSD.

The entry of distributed generation ended up making the economic signal of the current tariff even more distant, since the injection of energy into the various tariff stations ends up distorting the economic effects of efficiency in the use of the grid.
In low voltage, the problem is even greater because despite the establishment of the white tariff, it was not widely adopted, perpetuating the volumetric tariff.

The urgency of finding a solution to the increase in DG in distribution systems is understood, but seeking centralized control mechanisms through the DSO does not seem correct and perpetuates a model that has not been working.

The very existence of “curtailment” in plants connected to the transmission system is already an indication that this highly centralized model was unable and cannot deal with new generation technologies.

The need for greater consumer involvement with aggregators should be encouraged, as distributed solutions tend to be more robust and less costly. In other words, solving the problem at its source by seeking direct action with consumers is more effective.

Encouraging the aggregation and creation of RED condominiums to collaborate with the DSO and TSO is even more interesting, including proposals to support the power grids. Thus, bottom-up models produce a better impact on the grids, promoting greater resilience.

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