Transitioning from national to regional grids

NARRATOR Welcome to the DNV Talks Energy podcast series. Electrification, rise of renewables and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry. 

MATHIAS STECK Welcome to a new episode of DNV Talks Energy here from the Global Smart Energy Summit in Dubai. My guest today is Alliander CTO Jereon Scheer. Welcome, Jeroen.

JEROEN SCHEER Thank you very much.

MATHIAS STECK  And we want to talk about the critical role of distribution networks in the changing energy landscape. But, Jeroen, before we go there, it would be great if you could introduce yourself as a person, as well as Alliander.

JEROEN SCHEER Well, let’s start off with Alliander, because that’s my employer. Alliander is the largest grid operator DSO in the Netherlands. Roughly 40 percent of all the grids for electricity and gas is in our hands and, due to the unbundling in the Netherlands, we are a DSO only, roughly 7000 employees, and we try to have the most reliable grid of the world. Not succeeding, because Singapore beats us every time with their extremely reliable grid. But we have roughly 20 minutes outage of electricity every year. And on gas, it’s less than one minute.

And then about me, since a little bit over seven years with Alliander. I came to Alliander due to the fact that I was asked to create the energy transition and the digital transformation of the company, and to guide that and to direct that. And that’s basically still what I’m doing, but I’m not only doing it for Alliander, but also for the Dutch… Let’s say, the group of all the DSOs we have, trying to influence our regulation not only on Dutch level, but also on the European level.

MATHIAS STECK Jeroen, you just mentioned energy transition, and that is going on on different levels. We have distributed generation as one example, but it would be interesting, from your perspective, for a distribution system operator, what are the main challenges in the energy transition?

JEROEN SCHEER I think we have three transitions actually intertwining, and two are pretty obvious. Everyone can understand them. One is the transition on the usage side, the demand side, where everyone starts to drive Teslas and use energy completely differently than what they do now, or more. And the second transition is about the renewables coming in, also on a large scale, or on local level. The second transition is on production.

And the third one is probably the most forgotten one, that is the transition from a distribution perspective. People seem to think that the distribution grid is completely unlimited and, unfortunately for them, it’s not. Simply on the very local level, if you have 200 houses, on average, connected to your grid, and everyone starts to install heat pumps, electrical vehicles, etcetera, simply, when they use it, especially in winter season, they start to use it all at the same time, because they want to have the heat, or charged cars, etcetera, then the fuse in the street transformer will blow. As simple as that. And then nobody has light anymore. So, that is the biggest challenge we want to avoid. And then we have an extra challenge, is that we have, now, so many people who want to install solar parks, wind parks, renewables, etcetera, that our engineers are not capable of making everything work, just in real life, to make the grid work again. So, we really have a challenge in finding enough capable people of making it work.

MATHIAS STECK Right. If we look a little bit into the importance of grid on national level, and then what you just described, a more regional setup of grids, you see the balance of the importance shifting?

JEROEN SCHEER Not enough.

MATHIAS STECK Not enough.

JEROEN SCHEER I think that when you look at the, especially on Dutch level but probably also on European level, is that there is a large focus from regulators and TSOs, because they currently run the market as a wholesale market, as a balance operator, and actually they do a brilliant job. But now, there is a large shift to more, this very local level. So, what we will see is that we have local congestion that we have to solve on a local level in that specific context. And when you look at the local context, a TSO has no clue, because they do not look behind or beyond the substation. So, I think that we are facing a challenge with our regulator, that they need to shift their focus more to the local context we need to manage.

MATHIAS STECK Right. I think a particular challenge in countries in Europe, or maybe, also in the US, is that we have old systems, which were never designed for the situation they are facing today. We hear a lot about the opportunity to operate these systems much smarter. What opportunities do you see there about new technologies coming in, and heading towards digitalization, probably, to make this more viable and a safe solution, still, for the future?

JEROEN SCHEER Yes, there is enormous opportunity, but we also need this opportunity. What we see is that, currently, actually, what we call on the local level, we are happy but blind. So, the system is running on distribution level, and actually is running fine, because the design we had for, let’s say, 50 years has so much spare capacity in our grid that we can handle, basically, everything that is on our grid in the next five, seven years. However, if there’s local context with renewables, and EV and heat pumps really hit the fan, then we have a problem. So, what we need to do is, not only measure our transformers itself, so we know exactly the local state of our grid, and handle and do stuff around that, but we also need to capture the data from non-DSO equipment like the Tesla, like the heat pump, so we know what the load on our grid is. So, we need to have digital solutions, data-driven solutions, that capture all the data from our context, and use that data wisely for grid management.

MATHIAS STECK Does that mean large CapEx investments, and change of the existing assets?

JEROEN SCHEER What we try to avoid is large CapEx investment, because that’s all societal money. So, we need to do that as wisely as possible. Of course, we cannot avoid it completely. We still spend half a billion every year on our assets, just for expansion and maintenance, etcetera. But, of course, if we want to have more digital solutions, to use our assets much wisely, we have to do CapEx investments or OpEx investments as well in these digital solutions, to ensure that we avoid these additional asset investments. So, there’s kind of a balance between more asset investments versus digital solution investments.

MATHIAS STECK I want to come back to an interesting point you mentioned earlier, that it is difficult to find the engineers, or the talent, who can make things work, because change happens very fast. So, there’s obviously a change in the required capabilities but, together with this, a change in the capabilities of the DSO itself. So, in that transformation, your role as the CTO, how do you see the utility, such as Alliander, prepared to change fast enough from a people perspective, but also from a culture and technology perspective?

JEROEN SCHEER Yes, that’s probably the question that keeps me awake every night. Well, actually, I sleep quite well, but that is the main question we have is, if we have too few engineers for the next five to ten years, let’s put it that way, and maybe afterwards we have more than sufficient, can we make our engineers more productive? They work extremely hard, they are very capable people, but if we can provide them with better digital solutions, they can probably work more effective and more efficient. And that could be part of the solution.

Of course, we have partnerships with all kinds of construction engineers, etcetera, so we partner out. However, it’s a combination of these bringing digital solutions to our engineers to work more efficient, and have a larger pool of engineers, of talent. And, of course, we do a lot with HR on education, and re-education, and re-training, of engineers. Maybe now they are gas engineers. We can re-train them for electricity, the other way around, etcetera. So, that’s what we also try to do.

MATHIAS STECK Looking a couple of years back, there were talks about the death spiral for utilities. That was related to renewables, to some extent. There were talks about new big players coming in like, let’s say, the big search engine and data management companies. Or, then later, from the telecommunications sector, who had good connections to homes already. So, in that transformation, how do you see the importance of utilities, and what is, kind of, the strategy to survive in these scenarios?

JEROEN SCHEER Actually, for a DSO, that’s probably the most simple answer, because we are still needed. You still need the cables and the pipes we have in the ground, so for a DSO, actually, that question is probably the least complex to answer.

For a retailer, however, it’s probably completely different, because what we see as a DSO is many more local communities starting to ask questions to us, and not to the retailer anymore. So, they feel, probably, that the retailer is not helping them enough to make the transition to more local renewable communities, and they need solutions for that. So, if you want to survive as a retailer, and you still rely on your traditional business model, which is basically around large power plants, the trading of it; the more customers you have, the more energy you can trade and make money with it. But, if you still lose more and more customers, or the margin on the customers is really diminishing, then as a retailer, you have to make, really, a shift to a community manager, or an aggregator, or something much more. It’s not one size fits all anymore.

MATHIAS STECK Yes. We discussed a little bit earlier here with a colleague from NREL the plummeting cost for energy, which also comes, then, with interesting implications with regards to investments. But, then, the bottom line, talking about margins you just mentioned, how much money can you make selling or distributing electricity at some point in time? Then, a little bit earlier, we talked about the importance of regional setups rather than the national ones, and we briefly touched upon new players coming in, changing, a little bit, business plans of some partners in the ecosystems. So, taking that all together, to have a successful ecosystem with the different players involved, how would you think these need to work together so that everybody gets a piece of the pie to keep operating?

JEROEN SCHEER Yes, that’s an interesting question that has a lot to do about how the entire market model will work. I believe that, in the end, since energy… It will never be free. A lot of people tell that energy will be free, and that will not be the case. You still need to transport it, or distribute it, etcetera, so there is still a, kind of, societal cost in transporting the energy from A to B. And, probably, when you decrease the distance an electron has to travel, the cheaper it will get. As a retailer, making money out of this is probably very difficult. However, and I think that’s a good news, customers, households, or smaller businesses, although they care about energy, but they want to have it cheap, they want to have it reliable and, probably, as clean as possible. And they will pay for a solution that gives them that comfort feeling. It’s still a commodity, energy, and actually, I want to keep it that way. So, you don’t want to think about, “can I switch on my light tonight, or not? Is my house warm enough tonight, or do I have to decrease my temperature one or two degrees because the grid is not able to handle it, or the price is too high”, etcetera. So, if you can automate that as a, kind of, combination of retailer, or aggregator, and a DSO, in a new market structure based on this local context, I think you can still make good money out of energy, but not the enormous amounts of money and profits we knew 10 years ago.

MATHIAS STECK So, Alliander is a world-leading distribution system operator. Can you share with us, what is your secret sauce, and looking forward, what can you share with us that you do to stay at this position?

JEROEN SCHEER That has a lot to do with that we have a little bit of different culture than many other DSOs. Many DSOs are very reluctant for innovation, because they are grid managers, and as the word manager already says – don’t touch it, it won’t break. And the first thing we do within Alliander, and I play a role in that, is, I want to break it as fast as possible. So, fail fast, learn fast. So, we do a lot of innovation in order to learn the new energy system. Because we have no clue. Nobody has a clue. We have ingredients, we have a lot of ingredients, but how this will come together, nobody knows. So, it’s all about taking risk, but do it small. Start small, fail fast, learn fast. And we throw away a lot of our solutions we developed, because we see they don’t work. So, don’t be afraid to throw away new stuff. Is that a secret? Maybe for a DSO it’s a secret. But, when you look at retailers or any other industries, telecom providers, they do exactly the same. So, it’s not a secret, it’s just innovation to another level.

MATHIAS STECK And we see that the customer, the end-client is getting more and more important; kind of, demanding new services, and more comfort.

Jeroen, we slowly come to an end of this episode already, but I’d like to take the benefit, since we are here on the Global Smart Energy Summit in Dubai, what are your expectations, what do you want to take home but, also, what can Alliander bring to this region?

JEROEN SCHEER Well, bringing is exactly what I just talked about. All these innovative solutions, and what we learned, and especially what is not working and, of course, what is working, we can bring to the table as well. So, we do that.

What I would like to learn here is, especially in the Middle East, it’s a different situation than what we have in the Netherlands, of course. It’s much more all-electric here, it’s much more solar here. But there are so many, when you look around here at the summit, which is connected to the Middle East convention on electricity, you see so many smart solutions from start-ups, smaller companies, who thought of solutions that I couldn’t dream of, but they are already there. So, what I will do in the plane, when I fly back home, I make a complete list of all the brilliant little solutions, like LEGO bricks that we can glue together to a new, complete solution that will stabilize our grid.

MATHIAS STECK Jeroen, talking about the energy transition, we have just described, or, you have just described, on a high level, the challenges; but I would also be interested in the differences when we talk about electricity distribution and gas distribution, also in the context that we tend to say gas as a frenemy of renewables. What is your take on that?

JEROEN SCHEER Well, it’s interesting, because when you look at electricity and gas as we do it now, we have fossil gas, of course, coming from Norway, the Netherlands, Russia, whatever, and that’s completely a separate system from the electricity grid. And what we will see happening, actually, are two things that will go on. First of all, when people start to use hybrid heat pumps, for seasonal impact, especially in the winter, when the grid has congestion you can switch your heat pump to gas as a, let’s say, backup facility. So, you still have your heat pump running, only not on electricity anymore.

And the second transition that will go on, and I think a lot of people forget that, is that we will move away from fossil gas, of course. But there are many, many other solutions from bio-gas, synthetic gas, gas that we can produce, actually, on sea, and may get methane out of it. So, we can make non-fossil gas, put into our grid, on our gas grid, and use that in this hybrid solution. So, you see that the gas and the electricity grid, if you really use it and look at it as one system, you can optimize that one system using non-fossil fuels as a backup or, even, maybe, as a main source together with renewable energy, and make a CO2-neutral environment.

MATHIAS STECK Okay, Jeroen, that brings us to the end. Thank you very much for your valuable insights, and thank you to the listeners for listening. That was Jereon Scheer, the CTO of the Dutch distribution system operator Alliander, on the critical role of distribution networks in the changing energy landscape

NARRATOR Thank you for listening to this DNV Talks Energy podcast. To hear more podcasts in the series, please visit dnv.com/talksenergy.