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How to make it true? A Regulatory reflection

FSR Topic of the Month – June Editor: Gianluigi Migliavacca (SmartNet Project)

Written by: Ivana Kockar (University of Strathclyde), Gianluigi Migliavacca (RSE)

This final article in the series dedicated to the ancillary services from distribution provides a few reflections on regulatory aspects concerning future network operation and how the exciting work carried out in the SmartNet project may help plans to realise a better integration and utilisation of renewable energy.

The EU’s Renewable Energy Directive sets a binding target of 20 per cent of final energy consumption from renewable sources by 2020. New and even more challenging targets have been set for 2030, including a cut by 40 per cent in greenhouse gas emissions and at least 27 per cent renewable energy consumption. To that end, the increased penetration of the Distributed Energy Resources (DERs), i.e. Distributed Generators (DGs), Active Demand Participation (ADP) and Energy Storage (ES) devices, have been hailed as one of the major ways to carry out the transition towards low-carbon power systems. However, the emergence of local, distributed, generation and rising levels of Renewable Energy Sources (RES) are challenging the traditional ways of managing energy networks. They also require a review and adjustment of energy policies, both at the EU and national levels.

Integration of DGs: complicated, yet necessary and welcomed

While national governments and the European Commission are keen to encourage the utilisation of renewable resources, increased RES penetration and DG connections have started to show an adverse effect on network operation, requiring new solutions for the secure system operation. For example, certain areas of distribution networks may increasingly experience voltage violation problems, network congestion, as well as changes in flows or even exports at the TSO-DSO interface. This calls for a better coordination between TSOs and DSOs, including re-evaluation of DSO’s roles and responsibilities in enabling flexibility, as well as managing congestion, active and reactive power flows and data. A work by EURELECTRIC on TSO-DSO interface resulted in a publication of general guidelines for reinforcing cooperation between DSOs and TSOs and data management.

A move towards the Smart Grids and the use of smart solutions combined with innovative business models might allow more efficient use of the current distribution infrastructure, and reduce the costs of the transition to a decarbonised electricity system. However, as underlined by the recent CEER consultation, as well as by the SmartNet response to it, such a move also requires revising regulatory frameworks and roadmaps.

TSO-DSO interaction and the new “Winter Package”

With the increasing integration of RES, there is a need for enhanced flexibility which can be seen both as a challenge and a new business opportunity for entities connected to distribution networks. DERs could get the opportunity to participate in the provision of ancillary services, such as congestion management, balancing and voltage regulation. In the future, they could provide even more advanced services like those related to power quality and system inertia. These opportunities are underlined by the new EU legislative package “Clean Energy for All Europeans”, also nicknamed the “Winter Package”, which seeks to establish a common power market design across the Union while ensuring adequacy of supply, as well as promoting a better integration of RES and demand side participation into the electricity markets.

In addition, the Winter Package seeks to further define the regulatory framework for DSOs, which are seen as critical for activating demand side flexibility so as to help with the integration of renewable resources, as well as to enable participation of DERs in ancillary service markets (either directly or via aggregators). However, the Winter Package assigns a role to DSOs for local congestion management but not for balancing, whose management would remain in the hands of the TSOs only[1].

How can SmartNet help realise Winter Package objectives

Whereas final regulatory recommendations will be possible only towards the end of the SmartNet project, a few preliminary considerations can already be highlighted on the basis of the experience acquired during the first half of the project:

  • Cooperation and coordination between TSOs and DSOs are an essential element, if DERs are to play a significant role in the provision of real-time ancillary services (this is particularly relevant if the services are provided to TSOs and can affect the secure operation not only of the local distribution networks to which they are connected but of the entire system as well). While it could be appropriate that TSOs retain a responsibility for the provision of balancing services, nonetheless they could have to share part of this responsibility with DSOs to the extent that the importance of the contributions to this service from entities connected to distribution will grow.
  • While the EU framework can provide the main guidance for a certain level of synchronisation and harmonised solutions, national and regional regulators will be in a better position to decide which coordinating scheme between TSO and DSO will be the most appropriate locally, and how the regulation should be developed to enable this change. In general, a balance has to be sought for between local optimality and the implementation of a harmonised pan-European design.
  • The role of the emerging DSOs will depend on the implemented coordinated scheme, and can range from only managing local congestion to managing local market and the provision of ancillary services sold by DERs at both TSO and DSO levels. The latter will involve more integrated TSO-DSO operation. However, it can be expected that the complexity of the implemented scheme will be affected by the size of the DSOs: only big DSOs will be ready to take a role of significant responsibility. Being the DSO landscape very variegated in Europe, we can expect smaller DSOs to have to integrate their efforts in order to be fit for the new responsibilities.
  • In addition to advancements of TSO-DSO coordination schemes, types, characteristics and regulation regarding the provision of ancillary services will need to evolve so to enable more participants to take part and use these new business opportunities. Therefore, as the potential flexibility providers are mainly small DERs, regulation will have to take fully into account the characteristics of the potential flexibility providers connected to the DSO side. In particular, the importance of the market design for ancillary services has not to be overlooked: only if the architecture of real-time markets will be able to take fully into account the characteristics of the potential flexibility providers connected to distribution grids, it will be possible to obtain a significant participation on their side.
  • The role taken by the aggregator is crucial: aggregators must be able to provide a simplified interface towards the market, hiding most details and complexities of the characteristics of the single flexibility providers. Aggregators must deliver flexibility providers efficient price signals so as to incentivise their participation.
  • Viable business models must be available for all market participants, including DERs, aggregators and other customers. It is expected that this may also include new regulation like the establishment of the right incentive schemes, whenever needed.
  • Network planning will also have to facilitate better utilization of RES, while minimising infrastructure investments, or postponing investments so to reduce the risk of stranded assets.
  • Finally, technical optimality will have to be supported by a thorough cost-benefit analysis.

In short, the path towards a full-fledged participation of DERs to for ancillary service markets is still a long way. Nonetheless, studies like the SmartNet project will provide a contribution towards an increase in the efficiency of the electricity system, thus allowing to reduce prices for the consumers and, at the same time, enabling them to play the central role envisioned in the general philosophy of the Winter Package.

Final results of the regulatory analysis carried out by SmartNet and the consequent regulatory recommendations will be available in the second half of 2018. So, keep visiting our project site for new updates!

[1] EC (2016) Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on common rules for the internal market in electricity – Art.32.