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The integration of RES in the electricity system

This is a video interview conduced by the instructor (Fulvio Fontini) to a leading expert (Prof. Matteo Di Castelnuovo)
Dear Matteo, It’s a pleasure to host you here. Welcome to this course. So we would like to talk about the new perspectives, posed by the technological evolution for the selectricity system. So, what are the new possibilities provided by the technological evolution and how important they are for our everyday life. Thank you Fulvio and thank you for having me within your MOOC. Well, there are, I would say, tremendous opportunities thanks to the new technologies. On the one hand, the new cleaner technologies allow the arrival of new players, sometimes coming from other sectors. Think about the automotive and the electric cars basically, or sometimes coming from completely different sectors.
And simply because they have a vested interest in some kind of production in terms of a clean technology. So really great opportunities to basically enlarge the perimeter of the energy sector, so allowing new players to come into bringing more innovation. And it’s also kind of a peculiarity of a particular renewable technologies, the fact that actually they can come also in a small package, so to say. Which means contrary to what used to happen until twenty years ago, you can actually have a relatively small Developer which is able to build and, sort of, get into the market with the wind farms or solar plants. So, that in terms of market perspectives.
With regards to final consumers, of us , were there’re, again, very relevant opportunities because basically the new technologies allows us, as consumer, first to have a better chance of getting a cleaner supply. Should we be interested to receive the kind of supply in? I hope we do so. But also even more importantly, the fact that actually, new technologies allow us to interact with the market. So in a way, consumers can become also not just final consumers, but also market participants. And we use the term prosumers in that respect. So we interact, we have a sort of. .., It becomes easier to switch, to require new services.
It will become easier to change supplier, and it will become easier for us to interact with the market. For instance, by selling back the energy we produce with our own solar panel on the top of our home. So you have depicted a picture which is a win-win situation for the system and for consumers as well. But, are there any risks, both for the system and for us as consumers, is the future only bright or should we pay attention to something? Oh, we should. As usual as economists say, there’s not such a thing as a free lunch, right? And that’s certainly the case also for the energy transition, which means there are several risks and challenges ahead of us.
Firstly, as the systems become more sustainable, decarbonized, which means it has to rely on these relatively newer technologies. This ecosystem becomes also more complex to manage. And if we’re not careful enough in terms of investments, it will become more vulnerable. Think, as an example, to cyber attacks, okay, as we, more electrify our energy consumption, bringing electricity means also that it could become more vulnerable to cyber attacks, for instance, think about electric cars. So there are risks in that respect. The second weeknes is also due to the fact that, a lots of investmentthat would have to go into this transition, ok.
And even though in terms of some technologies they clearly are more mature now and are probably more appealing in terms of attracting the necessary amount of funds to get the investment done. There are also some newer technologies which we still need with regards to the energy transition that are less mature, and funding for those technologies can become tricky, because it may be perceived as too risky. And finally, there’s also the other types of investment which has to do with the general infrastructure. Ok, so the infrastructure definitely has to be extended. Massive investment, according to all analysis, indicate that we have to really increase extensively the amount of network infrastructure.
And so the way that these infrastructure would be found is still not necessarily clearcut. Let me add a final question. We have students from everywhere in the world. So throughout the course, I’ve tried to explain the way electricity system is formed, without having regard to just one specific market situation. Because we, in the world, have cases in which there are a lot of markets, very liberalized, very competitive and situations in which there is just a vertically integrated industry, with just one operator. So in terms of the pace of the arrival of the innovation and the impact, do you see differences? And do you see problems with regard to these aspects?
I do, indeed ,because actually one thing that we learned over the years is that actually that the kind of market design and regulation, which was designed when markets started to be liberalized (so think about the nineties) liberalizing typically in Western countries, not necessarily just in electricity but also network industries in general, for that kind of design and combined regulation did the trick. So, provided several benefits in terms of social welfare. But at the same time, as we sort of switch to this newer technologies, which is basically clean technologies, the system ,kind of, went into crisis, okay, wasn’t really able to necessarily, fully recognize dependency with this technology. So we had to deal also with an initial phase based on subsidies.
That also combined with the fact that actually we, need to integrate these technologies which clearly by definition are different because for the most part they’re variable. And so which means you need to combine them most with the storage technology. So there’s very much an ongoing work with regard to market designs and regulation. And we see it. Sometimes, it’s (actually often it’s) a kind of a trial and error. And we see whether some markets are actually progressing in a way , at a faster pace than others. So I’m thinking as an example, what California and Germany have been doing, in positive terms, with regards to the deployment of a new business model for storage technologies.
As opposed to other markets which are still lagging behind. So it’s very much a work in progress. And this is a very important area of study in general, of research because we, in a way Fulvio we desperately need innovation, ok, because the target in terms of decarbonization and climate change mitigation, it’s almost overwhelming, I would say. And so we very much are in desperate need of triggering and nurturing innovation in energy technologies. Thank you Matteo, very clear. It was really a pleasure to have you here. It was a pleasure. Thank you for having me with you.

RES stands for Renewable Energy Sources and the term is more than just a buzzword.

Technology and innovation has promoted the development of RES (or clean energy), whether in a large-scale or small-scale, and it has allowed consumers not only to get a cleaner supply of energy but also to interact with the market as prosumers.

The introduction of RES in the electricity system has enabled so many possibilities but has also exposed the market to new risks.

This interview with Professor Matteo di Castelnuovo will shed some light on both the opportunities and challenges of RES integration.

Professor Matteo di Castelnuovo is an Associate Professor of Practice and Director of the Master in Sustainability and Energy Management (MaSEM) at the SDA Bocconi School of Management.

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Electrical Industry: Production and Economics

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