Supporting a cost-effective grid strategy for electrification. Co-location and cost-reflective tariffs

Direct and indirect electrification from intermittent renewable energy sources are key pillars of the green transition. Yet, they pose challenges to the energy system and grid regulation schemes as we know them.

Up until this point, private direct wires connecting electricity production and consumption outside the public grid have in general not been allowed. Now, the current debate is whether direct lines and so-called co-location between energy production and consumption outside or with very limited connection to the grid provide not only private, but also socio-economic benefits in the form of cost savings as the need for grid build-out is reduced.

The main conclusions of our study are

• A new type of large, flexible electricity users, such as e.g., electrolysers for Power-to-X production, provide an opportunity to cost-effectively integrate large volumes of renewable energy into our existing energy system without large increases in grid capacity if they are co-located, either physically or via non-grid direct lines, with electricity production
• Contracts for interruptions can help to further limit the demand for grid capacity – in particular during peak hours
• Current tariffs are not cost-reflective for this type of large, flexible users with limited connection to the grid. In fact, current tariffs would easily become so significant that projects would be un-economic and hence not materialise at all
• A transition towards a capacity-based tariff scheme would enable new users like electrolysers to enter and even bring additional grid revenue to the TSO.

The study is commissioned by Ørsted.