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To avoid unnecessary distribution network investments, distribution tariffs are expected to become more cost-reflective, and DSOs are expected to procure flexibility. This will provide an implicit and an explicit incentive to provide demand-side flexibility. In this paper, we develop a long-term bi-level equilibrium model. In the upper level, the DSO optimizes social welfare by deciding the level of investment in the distribution network and/or curtailing consumers. The regulated DSO also sets a network tariff to recover the network and flexibility costs. In the lower level, the consumers, active and passive, maximize their own welfare. We find that implicit and explicit incentives for demand-side flexibility are complementary regulatory tools, but there are limits. If network tariffs are too imperfect, the resulting consumption profiles can become too expensive to fix with curtailment. We also find that it is difficult to set an appropriate level of compensation because of the reaction by prosumers. [ABSTRACT FROM AUTHOR]

In this paper a game-theoretical model with self-interest pursuing consumers is introduced in order to assess how to design a least-cost distribution tariff under two constraints that regulators typically face. The first constraint is related to difficulties regarding the implementation of cost-reflective tariffs. In practice, so-called cost-reflective tariffs are only a proxy for the actual cost driver(s) in distribution grids. The second constraint has to do with fairness. There is a fear that active consumers investing in distributed energy resources (DER) might benefit at the expense of passive consumers. We find that both constraints have a significant impact on the least-cost network tariff design, and the results depend on the state of the grid. If most of the grid investments still have to be made, passive and active consumers can both benefit from cost-reflective tariffs, while this is not the case for passive consumers if the costs are mostly sunk. [ABSTRACT FROM AUTHOR]

There is a trend in regulatory practice towards providing dedicated incentives for strategic investments. Italy and the United States have the longest experience with authorizing returns and risk-mitigating incentives that deviate from standard regulatory treatment for policy purposes. In these countries, the regulatory incentives are based on a case-by-case assessment of capital projects. We find that the Italian scheme is simpler, which reduces administrative costs. The U.S. scheme is more advanced in the case-by-case assessment. Even though dedicated incentives may be controversial, our analysis of both experiences shows that, notwithstanding significant learning costs, both schemes have facilitated substantial financial investment in strategically important infrastructure. [ABSTRACT FROM AUTHOR]

The REPowerEU plan sets ambitious targets for biomethane and renewable hydrogen production in the European Union. Energy system models are needed to assist policymakers in designing energy policies that combine carbon pricing with direct support for renewable gases. This paper advances a stylized long-term equilibrium model in which competing fossil-based and renewable technologies serve final electricity, heating, and hydrogen demand. First, we analyze under which conditions renewable gases – biomethane and renewable hydrogen – are cost-competitive with carbon pricing and what determines the incremental cost to support them with direct subsidies when they are not. Second, interaction effects between carbon pricing and renewable hydrogen and biomethane production targets are investigated. When renewable gases are not cost-competitive and direct support is still required to reach the renewable gas production target, the incremental cost to support them are shaped by significant interaction effects between policies. The main conclusion is that policymakers should be aware of these interaction effects when they design renewable gas policies to avoid surprises regarding the substitutability between energy policies, the incremental costs implied by them, and their collective impact on renewable energy production. • REPowerEU aims for significant deployments of biomethane and renewable hydrogen in the EU by 2030. • Energy system models can help policy makers design renewable energy policies that combine carbon pricing with direct support for renewable gases. • Interaction effects between policies affect the cost and revenue structure of renewable gases. [ABSTRACT FROM AUTHOR]

Interoperability in the context of smart electricity metering is high on the European policy agenda, but its essence has been challenging to capture. This paper looks at experiences in other ecosystems (electromobility and buildings), in other sectors (healthcare and public administration), and at the national level in the Netherlands and the UK. We show that the definition of interoperability depends on the context, that there are common solutions to different issues across sectors and that cross-sectoral factors must be increasingly considered. We recommend adopting a broader view in smart metering beyond the interoperability of devices, considering solutions that have worked in other sectors and exploiting synergies across sectors. Our analysis of experiences provides a comparison that can help move the debate at the EU level forward. • The EU implementing acts are an opportunity to tackle interoperability issues related to smart electricity metering. • We recommend giving more attention to the non-technical aspects of interoperability. • The organisation of interoperability, including the roles and responsibilities of the involved actors, still needs to be addressed. • We also recommend considering solutions that have worked in other sectors. • Examples are an EU monitoring and reporting scheme for national interoperability progress (as in public administration) or a scheme for interoperability testing (as in healthcare). [ABSTRACT FROM AUTHOR]

Analysis of the visions of key EU Member States to achieve a low-carbon energy system by 2050 finds that the states are already pursuing sometimes divergent strategies that create new risks for energy policy fragmentation but also imply new opportunities for cooperation, and for EU institutions to provide added value to national policies. [ABSTRACT FROM AUTHOR]

Abstract: In the current context of a decarbonizing electricity system, grid innovation is needed to deal with the main challenges of integrating distributed generation, demand and storage, and large-scale renewable energy sources. Grid companies however have disincentives to innovate under the conventional regulatory framework, and if they do innovate, they are confronted with grid users that have disincentives to participate in the innovation. This paper analyzes three empirical cases where state of the art regulatory frameworks have been successful at stimulating grid innovation. The main lesson learned from the cases is that there is experience with addressing the disincentive of grid companies to innovate, but the participation of grid users in the innovation is much more an open issue. [ABSTRACT FROM AUTHOR]

Europe is tightening its climate change policy and with that its pollution control legislation, supposedly to lead the way towards a low carbon economy. As the rest of the world is lagging behind in greenhouse gas emission reduction efforts, this causes increasing concern for the European carbon-intensive industry. In order to address concerns of economic competitiveness and emission leakage, the EU is considering the extension of its recently revised EU Emission Trading Scheme on carbon-intensive goods imported from countries not taking comparable action to reduce their emissions. This article examines the permissibility of such an extension under the law of the World Trade Organization, namely the General Agreement of Tariffs and Trade (1994). [ABSTRACT FROM AUTHOR]

Abstract: In Europe, a common framework for renewable energy sources (RES) is aspired. Tradable green certificates (TGCs) are a market-based cost-efficient means to stimulate electricity production from RES. Since TGCs are the most widespread support scheme in Europe together with feed-in tariffs, chances are that a common European framework could well be based on TGCs. However, while integrating currently existing different national TGC systems, any remaining differences should be carefully considered. Just how difficult the creation of an international TGC market would be is illustrated in this paper by the case of Belgium, where no less than 4 different TGC systems exist nowadays. The example of Belgium illustrates that harmonizing different TGC systems is easier said than done and represents a serious challenge. This clearly illustrates that a single European support scheme for RES, however desirable, is still far in the future. [Copyright &y& Elsevier]

With European electricity markets not yet functioning on a competitive basis and consolidation increasing, the European Commission has said it intends to more intensively apply competition law in the electricity sector. Yet economic techniques and theories used in EC merger control fail to take sufficiently into account some specific features of electricity markets. The authors offer suggestions to enhance their reliability and applicability in the electricity sector. [Copyright &y& Elsevier]

Member states of the European Union have similar electricity market architectures, but these markets are weakly integrated. There is great potential in improving the links among member state submarkets, making better use of existing grid infrastructure. While investments in grid bottlenecks are necessary, existing regulation is inadequate to ensure and coordinate cross-border transmission investments. [Copyright &y& Elsevier]

Anaya and Pollitt [[2]] discuss the theme of regulation of flexibility service procurement in their second paper. The discussion is framed in the context of the Italian power market and potential DSO-TSO co-ordination on ancillary services procurement via the GLASM market platform. Anaya and Pollitt [[1]] present a comparison of 13 experiments in the use of smart platforms to trade flexibility services within seven jurisdictions. The rise of intermittent renewable energy generation, the coming mass penetration of electric vehicles and moves to decarbonise the gas grid are leading to widespread innovation experiments within electricity systems and their associated markets. [Extracted from the article]

Flexibility markets are a promising tool to make better use of existing distribution grids. We analyse four pioneering projects implementing flexibility markets: Piclo Flex, Enera, GOPACS, and NODES. Based on a literature review, we develop a six-question framework. We find that all of the considered flexibility markets are operated by a third party. All projects also engage with multiple DSOs to become the standardized platform provider. Differences among the projects are found in the extent to which the flexibility markets are integrated into other existing markets, the use of reservation payments, the use of standardized products, and the way TSO-DSO cooperation is done. The answers to these questions vary for the projects because of different visions, use cases, or project maturity. Our case study analysis of four pioneering projects enriches the taxonomy and shows that practice is moving faster than the conceptual debate around flexibility markets. • Flexibility markets are recognised as a way to reduce future grid investment needs. • Six controversies around the design of flexibility markets are identified. • Four European pilot projects are analysed: Piclo Flex, Enera, GOPACS and NODES. • Two trends and four differences among the projects are found. [ABSTRACT FROM AUTHOR]

Capacity mechanisms have been controversial in theory as well as practice. Lessons from experience with different capacity mechanisms led to the development of the reliability options. This mechanism promises two advantages over other types of capacity mechanisms. Firstly, it ensures the availability of capacity contracted via the capacity mechanism during scarcity. Secondly, the reliability option mechanism limits any energy market distortion due to its implementation and provides the consumer a hedge from high prices. We assess the ability of reliability options in delivering the two promises by analysing the reliability option designs in Italy and Ireland. We find that they deliver on the first promise but only partly on the second. [ABSTRACT FROM AUTHOR]

This paper applies two experimental economics methods (i.e., agent-based modeling and laboratory experiment) to a market test suite that is based on a fictional European wholesale electricity market. Quantitative results of generators' strategic behavior in this market context are separated between generators played by human subjects (i.e., master students) in a laboratory experiment and generators represented by computational agents in an agent-based model. The behavior is measured through offers that students or agents make when participating in the electricity trading auction and the market outcomes under both methods are discussed in order to illustrate the difference between the behavior of human and computational agents. The paper also identifies the improvements that would need to be made to the market test suite to allow for a more conclusive comparison in future experiments. [ABSTRACT FROM PUBLISHER]

• Independent aggregation can lead to imbalances and foregone revenues for suppliers. • The imbalance issue has been handled with a perimeter correction in most EU countries. • The need for a compensation for foregone revenues is more controversial. • Several supplier compensation models are being tested in the EU. • More guidance is needed at EU-level to converge into a more harmonized approach. The importance of independent aggregators has been acknowledged in the recently adopted EU Clean Energy Package (CEP). The CEP obliges all Member States to develop a regulatory framework to allow these players to enter the market, but it leaves many of the details of implementation to the national level. In this paper, we take stock of current practices in regulating the contractual relationship between the supplier and the independent aggregator. The actions of an independent aggregator can cause an imbalance in a supplier's portfolio, and suppliers have also asked for a compensation payment for forgone revenues. We find that the first issue has been handled with a perimeter correction in most countries, while the second issue is more controversial. The need for a compensation payment has been challenged and many different compensation models are being tested. We distinguish between the regulated, the corrected, and the contracted model. We conclude that more guidance is needed at EU-level for convergence on a more harmonized approach. [ABSTRACT FROM AUTHOR]

In this review paper, we select four important waves of new entrants that knocked on the door of European electricity markets to illustrate how market rules need to be continuously adapted to allow new entrants to come in and push innovation forward. The new entrants that we selected are utilities venturing into neighbouring markets after establishing a strong position in their home market, utility-scale renewables project developers, asset-light software companies aggregating smaller consumers and producers, and different types of communities. We show that well-intentioned rules designed for certain types of market participants can (unintentionally) become obstacles for new entrants. We conclude that the evolution of market rules illustrates the importance of dynamic regulation. At the start of the liberalisation process the view was that we would deregulate or re-regulate the sector after which the role of regulators could be reduced. However, their role has only increased. New players tend to improve the sustainability of the electricity sector in environmental, social, or economic terms but might also present new risks that require intervention by regulators. [ABSTRACT FROM AUTHOR]

The economic efficiency of distribution network tariffs may be enhanced by applying marginal cost pricing principles. This paper investigates the Long-Run Incremental Cost (LRIC) methodology, a marginal cost-based approach that has been applied in Great Britain since 2012. The long-term social welfare achieved under a coincident peak tariff set according to three different methods, i.e., LRIC, traditional historical cost-based allocation, and a theoretical benchmark, is analytically derived. The resulting social welfare is compared for a range of key system characteristics and the underlying mechanisms are discussed. The results provide evidence that LRIC is more efficient than historical cost-based allocation. • We assess the economic efficiency of distribution network cost allocation methods. • Varying levels of demand growth, elasticity, and upgrade costs are considered. • Long-Run Incremental Cost (LRIC) raises welfare compared to a historical cost method. • Social welfare gains of LRIC are not always driven by network cost savings. [ABSTRACT FROM AUTHOR]

Abstract: Nowadays, the European electricity systems are evolving towards a generation mix that is more decentralised, less predictable and less flexible to operate. In this context, additional flexibility is expected to be provided by the demand side. Thus, how to engage consumers to participate in demand response is becoming a pressing issue. In this paper, we provide an analytical framework to assess consumers' potential and willingness to participate in active demand response from a contract perspective. On that basis, we present policy recommendations to empower and protect consumers in their shift to active demand response participants. [Copyright &y& Elsevier]

From a national market perspective, taking transmission capacity into account reduces current concentration measures, although they remain fairly high even after substantial capacity increases. From an international perspective, a more efficient use of current transmission capacity by coupling regional markets can increase competition. That suggests it may not be appropriate to assess market concentration using national market shares. [Copyright &y& Elsevier]