Promoting Flexibility in the European Electricity System

The greater penetration of renewable-based generation in the European electricity system, to meet the EU environmental targets for 2020 and beyond, calls for enhanced flexibility of that system. European Regulators already highlighted this development. In their Conclusion Paper of the “Energy Regulation: a Bridge to 2025”[1] initiative of September 2014, they noted that “greater penetration of renewable-based generation is significantly increasing the requirement for market-based flexible response which will include the demand side and the supply side” and, more specifically, that “the continued penetration of non-programmable, renewable-based generation increases the requirement for flexible response. [European regulators] will aim to ensure that barriers to the development of flexible response are removed and that it can be provided by both the supply and the demand sides on a non-discriminatory basis. In particular, an appropriate framework for the evolution of Demand Side Response (DSR) on a non-discriminatory basis will need to be developed so that DSR can be established as a viable product”.

In its February 2015 Communication on A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy[2], the European Commission noted that “market integration of renewable electricity generation requires flexible markets, both on the supply and demand side, within and beyond a Member State’s borders”. To achieve this goal the Commission considers that “electricity grids must […] evolve significantly. There is a need to expand the possibilities for distributed generation and demand-side management, including intraday markets, to develop new high-voltage long distance connections (supergrids) and new storage technologies” and that “closer integration, including on a regional level, more cross-border trade and the development of both short and long term markets will deliver the right investment signals as well as the necessary flexibility to allow market integration of new generation sources”. In this respect, the Commission also announced its intention to “prepare an ambitious legislative proposal to redesign the electricity market [to] ensure that the electricity market will be better adapted to the energy transition which will bring in a multitude of new producers, in particular of renewable energy sources, as well as enable full participation of consumers in the market, notably through demand response”.

Therefore, it is Communication launching the public consultation process on a new energy market design[3], the Commission acknowledges that “today markets are not sufficiently flexible, both on the supply and on the demand-side to accommodate the increased share of renewable energy in the market” and therefore proposes that “the new market design should ensure that energy markets can fully support this transition at minimum cost. This can be achieved by removing the remaining obstacles for renewable energy and ensuring the market provides the right signals for sufficient investment in the flexible capacity needed to accommodate increasing participation of variable renewables in the system. A necessary step to achieve a successful and least-cost integration of renewables is through well-functioning short-term electricity markets, running from the day ahead of the delivery of electricity right up to the moment of consumption, which give full access to flexible technologies”. It also notes that “secure operation of the grid has become more challenging with the rapid growth of variable renewables, and both the demand side and conventional generation plants must be able and incentivised to respond to this flexibility challenge. Integrating storage in the electricity market would further increase the necessary flexibility: electricity should be stored when there is a surplus and prices are low; it should be released when generation is scarce and prices are high, smoothing out variable power production”. There are two separate, albeit related, aspects of flexibility which are relevant when considering it in relation to the greater penetration of renewable-based generation in the European electricity system, and they relate to the need of the system to withstand (i) sudden and (ii) unexpected changes in their output, where:

• Changes might be sudden in the sense that they may have steep gradients;
• Changes might be unexpected, in the sense that they cannot easily predicted with any accuracy.

Similar changes have traditionally occurred with unplanned outages of conventional generation units, but with renewable-based generators they become physiological. Addressing the flexibility challenge facing the electricity sector therefore encompasses several dimensions, including:

• the need to identify the technologies, behaviour and processes which may provide the required greater flexibility to the electricity system;
• an assessment of whether and to what extent the required greater flexibility can be triggered by the current market design. This assessment should include an identification of any appropriate (flexibility) “product” (or products) which can be used to promote a more flexible electricity system and the way in which these product can be handled or traded;
• on the basis of the above assessment and depending on its outcome (e.g. the identification of new “flexibility products”), whether the current market design is still fit for purpose or requires an enhancement to promote the provision of flexibility into the market and, if so, in which resect.

In this context, this Workshop aims at:

• providing a forum where technologies, behaviour and processes which are able to provide the required flexibility to the electricity system can be presented and discussed;
• identifying whether, and in which respect, an enhancement of the current electricity market design is needed to promote greater flexibility of the electricity system;
• defining the regulatory actions required to support such developments.

Accordingly, the Workshop will be structured in two sessions. Session I will focus on the technologies, behaviour and processes which may provide the required greater flexibility to the electricity system. Session II will identify any required market design and regulatory action to ensure that such flexibility is provided in the market in the most efficient way.

[1] Recommendation of the Agency for the Cooperation of Energy Regulators No 05/2014 of 19 September 2014 on the regulatory response to the future challenges emerging from developments in the internal energy market. [2] COM(2015) 80 final, 25.2.2015. [3] COM(2015) 340 final, 17.7.2015. An updated version of the programme can be downloaded below. Registration is now open.