Search

New European rules are being developed to shape electricity market design in a way that improves TSO- DSO coordination, makes efficient use of distribution-connected resources, and empowers the smallest network users. This deliverable combines findings and results from INTERRFACE research on demand-side flexibility and interoperability and data access and the INTERRFACE demonstration pilots to identify the need for new European rules and make proposals for their adoption. This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 824330

The support of decentralized energy resources under the Fit for 55 package and the REPowerEU plan places distribution grid users and distribution system operators (DSOs) at the center of the future European energy system. Also, the interaction between both types of agents is gaining importance for two reasons. First, DSOs face challenges connecting these new grid users to their network, leading to an increased need for grid investments and congestion management measures. Second, engaging these new grid users can bring opportunities for DSOs to manage their network and its possible congestion more efficiently.

In this paper, we investigate two main schemes for contracting demand-side flexibility by the Distribution System Operator (DSO) at the planning stage: a voluntary demand-side connection agreement where consumers offer their flexibility, i.e., load reduction, to the DSO and a mandatory demand-side connection agreement where the DSO sets the flexibility levels, i.e., load curtailment, to be contracted from residential consumers. A different bilevel equilibrium model is used for each demand connection agreement scheme. In both models, the DSO, in the Upper Level, decides on the flexibility price and network tariffs. Residential consumers react to those signals in the Lower Level. They can be prosumers that invest in solar PV and batteries or passive consumers. The paper answers two regulatory issues. The first is which option to choose for regulators between mandatory and voluntary demand connection agreements. We find that mandatory demand-side connection agreements result in higher welfare gains compared to voluntary ones and a lower price for flexibility. However, such agreements may entail some implementation issues for regulators and different curtailment levels among consumers. This connects with the second issue investigated in this paper on how to implement mandatory demand connection agreements from equity and feasibility perspectives. When introducing a pro-rata constrained mandatory scheme, curtailing consumers equally, we find that welfare levels are still higher than under the voluntary scheme but lower than in the unconstrained mandatory scheme. The difference in welfare and flexibility levels between the two mandatory schemes could represent a potential for a secondary flexibility mechanism, where consumers trade flexibility between themselves.

This paper explores the price setting of demand-side flexibility, modelled as consumers’ voluntary load reduction, in distribution grids. It develops a long-term equilibrium optimization model with a bi-level setting for voluntary demand-side flexibility. In the Upper Level (UL), the Distribution System Operator (DSO) maximizes welfare by deciding the level of network investments and setting the price for demand-side flexibility. The DSO also sets the distribution network tariff in order to recover the network investment and flexibility costs from the Lower Level (LL) consumers. LL’s active residential and commercial consumers react to network tariffs and to the price offered for their flexibility by investing in rooftop solar and batteries and offering a certain volume of demand-side flexibility when requested by the DSO. The passive residential consumers also provide flexibility by decreasing their load, but they do not invest in rooftop solar or batteries. We find that voluntary demand-side flexibility increases welfare and allows significant network investment savings. We also find that the benefits can reach all types of consumers. Besides, it is opportune to apply price differentiation when setting the price for demand-side flexibility, where applicable.

We think that the electricity markets that were developed over the last two decades did what they were supposed to do during this crisis: through higher prices, they convey the message that energy is scarce. “Shooting the messenger” is not going to remove the problem. However, we also learned a lot during this crisis on how electricity markets can be completed and complemented with regulatory instruments, which is why we have three recommendations: First recommendation: Enable and incentivize consumers and suppliers to hedge via well-functioning forward markets (which would complete the sequence of electricity markets). Second recommendation: Give consumers access to cheap renewables with Contracts for Difference (CfDs) and Power Purchase Agreements (PPAs) that are compatible with short-term markets. Third recommendation: De-risk the investments in energy resources AND mitigate affordability concerns for consumers by redesigning Capacity Remuneration Mechanisms (CRMs) or by complementing these mechanisms with other regulatory tools. We finally observe that a broader reform could also aim at accelerating the innovations on the consumers’ side envisioned by the Clean Energy Package. These innovations can bring the much-needed flexibility in decarbonized energy systems.

In this paper, we discuss the implementation of Capacity Remuneration Mechanisms (CRM) in the European Union (EU). We first illustrate that the costs of CRMs in the EU are significantly lower than in the US. Next, we discuss how the Clean Energy Package (CEP) intends to limit the future role of CRMs. Two steps are introduced to check if CRMs are really needed: a European resource adequacy assessment and a national implementation plan to improve current electricity market design. In case residual adequacy concerns persist, the CEP also includes provisions to guide the design of a CRM. Last, we discuss the role of the consumer in securing resource adequacy in the future.

This deliverable consists of an introduction and two main parts. Each part consists of two sections:Data exchange and interoperability and Demand-side flexibility. The two main topics of this interim deliverable, data exchange and interoperability and Demand-Side Flexibility (DSF), were identified as relevant research domains in the regulatory gap analysis performed in INTERRFACE Deliverable D2.4 Completed Regulatory Framework (Schittekatte et al. 2019).1 These two topics have been listed as European priority legislations. The relevance of the network code on Demand-Side Flexibility (DSF) has been confirmed in the priority list for new network codes for 2020-2023 published on 14 October 2020 by the European Commission. The implementing act on interoperability is described as a priority action in the European Energy System Integration Strategy published in July 2020 by the European Commission. Please note that our work around flexibility market design as part of D2.4 is also very relevant with regards to the planned new network code on DSF. We chose not to include that research in this deliverable as it is already published as part of D2.4 but we plan to integrate it, possibly including some updates, in the final deliverable of T9.4. The research results have a two-fold purpose. First, the research results feed into the ongoing discussions at national and European level around the new European legislations. Second, the research results are of direct use for the project partners who are involved in the INTERRFACE demonstrators. This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 824330

Interoperability in the context of smart electricity metering is high on the European policy agenda but its essence has been challenging to capture. In this paper, we look at experiences in other ecosystems (electromobility and buildings), other sectors (healthcare and public administration) and at the national level (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 that goes 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 to move the debate at the EU level forward. We acknowledge financial support from the European Union’s Horizon 2020 INTERRFACE project (grant agreement No 824330).

Energy system models are needed to help policy makers design renewable energy policies that combine support for renewable electricity with support for renewable gas. In this paper, we advance a stylized model that includes demand for electricity, heating, and hydrogen in industry that is supplied by competing technologies. We first show that the status quo in most countries, which is a combination of carbon pricing with support for renewable electricity, only supports green gases indirectly and in a limited way. When we then add direct support for renewable gas to the model, we have two main findings. First, a Renewable Energy Sources - Gas (RES-G) target is more effective in supporting biomethane than in supporting green hydrogen. Second, there are strong interaction effects between a RES-E target and a RES-G target that can be both complementary and substitutive.

The EU Clean Energy Package (CEP) was finalised in June 2019 after the publication of its final texts in the Official Journal of the European Union, following trilogue negotiations between the European Commission, Council, and Parliament. It includes eight legislative texts - four directives and four regulations - on the electricity market and consumers, energy efficiency and the energy efficiency of buildings, renewables and bioenergy sustainability as well as governance of the Energy Union. In this report, we will focus on three of the eight legislative texts. First is the Regulation on the Governance of the Energy Union and Climate Action (Regulation (EU) 2018/1999). Second is the directive on the promotion of the use of energy from renewable sources (Directive (EU) 2018/2001) that is commonly referred to as RED II. Third is the directive on common rules for the internal market in electricity (Directive (EU) 2019/944). We will assess the impact of this legislation on the European internal electricity market rules compared to the framework established by the Third Energy Package. In this report, we present the background to the CEP provisions and weigh the possible implications of these measures.

As the saying goes, never waste a good crisis. We have certainly seen our fair share of crises in the past 30 years. And now there is the COVID-19 pandemic to add to the list. For some sectors, it is difficult to see the COVID-19 crisis as anything other than a threat. Notable examples include the hospitality industry, aviation and the performing arts sector. For others, such as diagnostics companies, the crisis has turned out to be a gold mine. Some companies have also made some very bold moves. In this white paper, Vlerick strategy experts have joined forces to reflect on the implications of the pandemic for businesses, to share best practices on how to deal with the current situation in the short term, and to offer methods and advice on how to build a strategy for the new normal. The message is not to all reinvent yourselves, but rather to put the COVID-19 crisis in perspective and answer some of the most pressing questions facing businesses today. How can you survive this crisis, and how can you be ready for the next one? How can you be better prepared for the future, bearing in mind that that future is unknown? Our Vlerick experts also explore why some organisations cannot see beyond the threats, while others seize the opportunities, and what you can do to help your company succeed. The COVID-19 pandemic may well have been the trigger, but the analysis and advice presented in this white paper have relevance far beyond the current crisis, a crisis that serves to show exactly how turbulent today’s environment is.

Demand-side flexibility can be incentivised to reduce the need for investment in distribution grids either implicitly or explicitly. Implicit demand-side flexibility is when prosumers react to price signals triggered by network tariffs. Explicit demand-side flexibility is when the DSO can contract flexibility. In this paper, we focus on one contractual arrangement: mandatory curtailment by the DSO for a fixed level of compensation. We develop a long-term bi-level equilibrium model. The upper level (UL) is a regulated DSO deciding on the network investment and/or curtailing consumers for a fixed level of compensation. The lower level (LL) consists of consumers, which can be prosumers or passive consumers. Prosumers can invest in solar PV and battery systems. They react to the network tariffs and to the compensation provided by the DSO for curtailing them. The regulated DSO anticipates the reaction of the consumers when investing in the network and when setting the level of curtailment. Network tariffs are set to recover the network costs and the payments made to consumers that have been curtailed. We find that the economics of explicit demand-side flexibility in distribution grids are positive, and they are more positive when tariffs are cost-reflective. This implies that we cannot avoid redesigning tariffs by using explicit demand flexibility. We also find that setting an appropriate level of compensation is difficult in the presence of prosumers and passive consumers. A level of compensation that is high enough for passive consumers will be gamed by prosumers.

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.