Stakeholder Workshop WP 5 Electricity markets and …towards2030.eu/sites/default/files/03 Zangrandi EDSO.pdf · Electricity markets and RES integration ... DSOs will continue to

Stakeholder Workshop – WP 5

Electricity markets and RES integration

DSO perspective 10.04.2015

Roberto Zangrandi

Special Adviser to EDSO

The voice of the industry

• Helmar Rendez, Stromnetz Berlin/Vattenfall, Vorstand Vorsitzender Vattenfall Europe

“In big metropolitan cities and regions the need of energy is high; here we need good and better integration between surrounding areas where the generation lies and large distribution networks”

• Richard Vidlicka, CEZ, Chairman of the Board

“Unregulated deployment of RES causing imbalance between supply and demand – an easy message, but that is the principal of the problems on the path to integration between TSO and DSO roles”

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Gathered at the 2015 Innogrid2020+ conference

The voice of the industry

Jan Peters, Enexis, Director of Asset Management and Innovator

“DSO have a limited role, and this is the big issue. DSO have anyway a big responsibility in the RES/DRES integration and we must face this responsibility without overdoing. Where – and if the market can provide a solution – we should step back”

Pierre Mallet,ERDF, Innovation and technical strategy Director

“We shall witness a large digital revolution, and cooperation is needed to cope with such a revolution; we have to innovate with the support of start-ups and small enterprises where visionary innovation is quick”

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Gathered at the 2015 Innogrid2020+ conference

EDSO discussion framework

✓Where new pressure is placed on the grid, such as connection of more distributed renewables, network tariffs inevitably tend to rise

✓DSOs need more data to manage their grids, but also need to increase cooperation with other network operators, be they other DSOs or TSOs.

✓This becomes pivotal for the security of the system.

✓Adjusting the current regulatory framework is necessary to ensure that quality of supply remains high for all customers and at an affordable price.

✓These challenges across Europe do not call for an uniform regulation, since DSO activities vary from one country to another and depend on geographical conditions, population density, and even climate: thus no “one-size-fits-all” model applies

✓Hence, a wide cooperation program is to be agreed even beyond the current relationsbetween TSO and DSO

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EDSO agrees with the three principles listed by CEER

❑The DSO must run its business in a way which reflects the reasonable expectations of network users and other stakeholders

✓DSOs must strive to deliver the best service to all consumers

✓This translates into fewer and shorter outages

✓DSOs will continue to make efforts to further increase quality of service

✓DSOs also explore new and innovative ways to improve current practice as regards connection and access

✓DSOs are also actively contributing to creating a real internal market by implementing new processes such as supplier switching in an increasingly timely manner

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❑The DSO must act as a neutral market facilitator in undertaking its core functions

✓DSOs facilitate economic activity by channelling electricity to consumers and give transparent, non-discriminatory connection, access and switching

✓DSOs collect metering data in order to enable suppliers to bill their customers

✓With smart meters continued evolution, more data will be gathered that will allow DSOs to better manage their networks

✓Data made available also in a non-discriminatory manner to market players with the consumer‟s consent, will allow new services and technologies to flourish

✓DSOs must guarantee that wherever there is competitive market activity that relies partly on the duty and functions of DSOs, a level playing field must be in place. To this end, full implementation of the Third Energy Package must be enforced where it has not.

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❑The DSO must act in the public interest, taking into account impact of costs and benefits

✓DSOs perform cost benefit analyses (CBAs) when developing their networks to

ensure that the solutions chosen are the most cost-efficient

✓DSOs are willing to act in the public interest and must be supported in this role by a coherent and stable regulatory framework that allows more cost-efficient options to be developed and tested, and for the application of new solutions and models that prove economically and socially beneficial.

✓This can mean fundamental changes to the way regulation allows grid development and management to be funded, for example a move from CAPEX to OPEX, but is also applicable to the models chosen for certain activities.

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The increasing complexity

✓The distribution networks are being challenged by current trends

✓The capacity of Distributed Renewable Energy Sources (DRES) connected to the distribution network is increasing, generating a “prosumer dilemma” impacting investments, costs, tariffs, and connected regulation

✓Consumers want to understand and make better use of their flexibility by embracing smart grid technologies, expected to be simple, clear and operative “apps” for their immediate benefit

✓The amount of Electric Vehicles (EVs) on the road and public charging stations will see a major increase by 2020 and a possible larger evolution in the decade to follow – impact on grids will not be negligible

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“Development of methodologies and tools for new and evolving DSO roles for efficient DRES integration in distribution networks”.

The increasing complexity

✓In the future, the core responsibilities of DSOs will not change – increased management complexity of the distribution systems may hinder their fulfilment

✓Current challenges might affect ability to develop, operate, and maintain the network (in order to deliver high-quality services to grid users and other stakeholders of the electric power system, while ensuring safety of people, assets most efficient use and system security in cooperation with TSOs).

✓DSOs need to evolve from a former “fit and forget” approach towards an Active Distribution System Management approach taking advantage of the opportunities brought by smart grid technologies, new regulated services, the facilitation of electricity markets, the empowerment of the end-customer and the creation of sustainable public policies for the cost-efficient integration of renewables.

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The shift towards an active role of DSOs

✓Active Distribution System Management approach will facilitate and support energy markets. DSOs have a privileged position. They can empower consumers to support the system.

✓Consumers/prosumers could bring flexibility, originating from DG units and/or flexible loads, to the system through competitive and transparent mechanisms.

✓This flexibility can help to integrate generation based on intermittent renewable sources.

✓DSOs as market facilitators will play a central role in enabling these flexibility to reach the market.

✓Active Distribution System Management requires that current roles evolve and new ones are created.

✓These will provide a level playing field by handling the increasing management complexity of the distribution system – so that an optimal use of flexibilities connected at distribution system level could lead to the provision of services the system requires.

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The “active approach” includes the following opportunities:

✓The improvement of network planning and operation processes, in order to optimise network investments,

✓The possibility to contract and activate flexibilities at different timeframes to solve specific network constraints,

✓The reinforced cooperation between TSOs and DSOs,

✓The ability to facilitate and enable electricity markets in a neutral and transparent way,

✓The possibility to provide regulated services based on data management and provision, in order to facilitate national and local public policies and enable customer empowerment.

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A discussion underway

Proposed rationalisation of DSOs role from the discussion paper:

“Preliminary assessment of the future roles of DSOs, future market architectures and regulatory

frameworks for network integration of DRES”

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www.evolvdso.eu

evolvDSO Advisory Board Meeting

D1.3 Preliminary assessment DSO roles The evolvDSO role model

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evolvDSO Advisory Board Meeting 15

The possibility to contract and activate flexibilities at different timeframes to solve specific network constraints,

Distribution Constraints Market Operator


Proposed DSO Role Model Gap analysis with other scenarios identified at the European level

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Contributor to System Security

Neutral Market Facilitator/

Enabler

Network Data Manager

Distribution Constraints

Market Operator Smart Meter

Operator

Distribution Constraints Market

TSO

Balance Responsible Parties

Flexibility Operators

Other Third Parties Relationship

Manager

Energy Wholesale Market, DR Market, Balancing Market, Capacity Market, Ancillary Services Market

Markets

Distribution System

Optimiser

Suppliers

Local Authorities

Conceding Authorities

Regulators

Service Providers

Metered Data Manager *

* Potential scenario identified by EG3

Roles performed by DSOs

Grid Users (consumers & producers)

Grid Users/ Suppliers/BRPs

Relationship Manager


Proposed DSO Role Model Gap analysis with specific national electricity models: the German example

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Contributor to System Security

Neutral Market Facilitator/

Enabler

Data Manager

Distribution Constraints

Market Operator

Distribution Constraints Market

TSO

Balance Responsible Parties

Flexibility Operators

Other Third Parties Relationship

Manager

Energy Wholesale Market, DR Market, Balancing Market, Capacity Market, Ancillary Services Market

Markets

Distribution System

Optimiser

Suppliers

Local Authorities

Conceding Authorities

Regulators

Service Providers

Smart Meter Operator *

* Role performed by suppliers in Germany

Roles performed by DSOs

Grid Users (consumers & producers)

Grid Users/ Suppliers/BRPs

Relationship Manager

The delicate data flow

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Bottom line: what is needed? evolvDSO says…

✓The current regulatory framework must be adapted

✓The current market design and regulation do not promote DSOs to exploit their full potential of active grid management

✓The new paradigm and the promotion of a more efficient energy system require a sound regulatory framework to support/promote non-conventional investments and management mechanisms

✓The differences amongst the European distribution systems make it difficult to foresee a specific path for the evolution and/or creation of DSOs future roles

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Keeping in mind that:

technologies, services and products evolve faster than regulation

Bottom line: regulators should…

✓Regulators should promote the definition of a clear and coherent market and regulatory framework

✓Policy makers are asked to set adequate rules, incentives and unbundling requirements for the evolution of DSOs and other stakeholders

✓In a smart grid environment, DSOs will need clear incentives that encourage and facilitate their advancement towards an active role

✓Certainty on network investments and innovative management approaches will allow DSOs to exploit their full potential in the most cost-efficient manner

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“A journey of 1000 miles starts with one step”

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Lao Tzu, Chinese philosopher, ca.500 B.C., quoted by many – JFK included

Stakeholder Workshop – WP 5 Electricity markets and RES integration

DSO perspective

10.04.2015

THANKS FOR LISTENING

Roberto Zangrandi

Special Adviser to EDSO

[email protected]

BACK-UP

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DSF, a 2014 view from GEODE

✓From the perspective of network operators, Demand Side Flexibility has the potential to:

▪ lower costs

▪ enhance security of supply and contribute to sustainable energy development through

▪ facilitating the low carbon technology roll-out

✓Already DSOs have to play a more active role in the electrical system to handle demand in an age of increased renewable and intermittent energy.

✓DSF and smart networks will be vital to enabling that level of:

✓interaction as the need for it increases in the future. The paper also focuses on the impact DSF can have on small customers and the way they consume energy.

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GEODE report “Flexibility in Tomorrow’s Energy System DSOs’ approach”, May 2014

DSF, a 2014 view from GEODE

✓Technology alone is not enough to bring about the change that is needed, and the „smartness‟ of the grid will be determined by the customers‟ behaviour.

✓Therefore, presenting a clear vision to small customers of how DSF can lower their energy bills with the minimum of effort will be fundamental to ensuring the technology delivers the maximum benefit.

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New stakeholders, new roles

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A commercial vision

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A commercial vision

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A commercial vision

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Overwhelming opportunities

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DSOs hunting reserve

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DSO – TSO Coordination/Relation

✓DSO – TSO Coordination/Relation

✓Electrical systems are physical “living” systems.

✓They are closed systems, meaning that consumption has to be met every second with equal production. This is called power balance.

✓The TSO is responsible for this balancing operation, as the overall system responsible party for each country or control area on the legal basis of the EU Network Codes (NCs), TSOs have the ultimate responsibility for the safe operation of the power system and setting up the criteria for the technical

✓Flexibility in tomorrow‟s energy system - DSOs‟ approach the role of DSOs and their relationship to other players in the flexibility market requirements needed from different parties and players, including the DSOs.

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✓Criteria are also established for the design of market models to support the operation of the grid.

✓New requirements placed on DSOs due to the obligations introduced by Network Codes will inevitably lead to increased costs.

✓The on-going efforts to develop and further implement the Network Codes may be seen as a first step towards a framework which enables market actors to buy and also allows flexibility providers to offer flexibility services on a level playing field.

✓These institutional developments are key to define the functioning of the future energy markets.

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✓The co-operation between TSOs and DSOs covers all time frames:

▪ DSOs must register connected production and customers offering DSF and balancing services, including aggregation, and inform the relevant TSo in the form of a predefined set of data

▪ DSOs must take part in the planning phase. This means delivering demand and production plans of customers connected to the DSO grid

▪ DSOs must - in some cases in real time and in others by time stamped data – be involved in both the technical operation needs of the system and new market functions such as DSF and balancing services - aggregated or not

✓These services are transited by and through the DSOs networks, to TSOs and the market actors.

✓More complex IT systems and communication between TSOs and DSOs and also with significant producers, customers and aggregators, offering DSF balancing services.

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The Prosumer dilemma

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Micro-generation in a flexible market

✓Prosumers, electricity producing consumers, are gaining ground in the electricity market

✓The promotion of electricity from renewable energy sources has created a strong incentive in many countries for many consumers to produce energy for their own consumption or even more than that

✓The term “micro-generation” refers to a wide variety of energy sources, like river or pumped storage power plants, photovoltaic, wind, biogas or small cogeneration installations, all of which having unique production profiles.

✓Particularly impressive how solar photovoltaic has shown how peak demand can be met by local

✓For this reason distribution networks need to be more flexible and a greater variety of local energy production is needed to balance weather-dependent issues.

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✓ From the economic perspective, the installation of such technologies will secure real consumer benefits by providing financial gains, depending on each Member States‟subsidy policies, from feed-in tariffs and / or bill savings from not buying electricity from the grid.

✓The future challenge for the DSOs will be to create dynamic databases bringing together consumption and decentralised production on a spatial level.

✓At this level, efficient energy management including heat and gas is crucial. The coordinated control of a large number of distributed energy sources, with probably conflicting requirements and limited communication, is problematic and will create higher costs for the DSOs.

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✓A large number of micro-generators can impact the operation of distribution networks. For this reason, the DSOs may need real time information from micro-generators.

✓For this information flow a separate information channel is needed, because smart metering systems are not designed to provide this real time information.

✓The unbundling provisions of the Third Package directive and the on-going efforts to implement the NCs, may be seen as a first step towards a framework to develop locally optimised market models.

✓This goal can be achieved by the deployment of the right infrastructure together with an adequate legislative framework.

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The prosumer dilemma: additional intermittence and tarification problems

✓In principle, self-consumption is not an issue: prosumers should be able to use their own generation as they please.

✓However, in most European countries distribution network tariffs are not yet adapted to self-consumption.

✓The network tariff paid by consumers is based on their energy use, while the cost incurred by the DSO depends on the network capacity used by consumers.

✓Self producing and consuming households consume less energy, but do not lower the need for grid capacity.

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Let‟s have look at a regular household

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Generation, consumption and self-consumption on a clear summer day (four-person household and solar power plant with 5 kW peak power). Source: SMA

✓When consumption is low, energy is fed back to the grid. This is a grid use. ✓When the sun does not shine, the grid is used to cover the energy need of this household.

✓ If the distribution tariff is energy-based, the DSO is only paid for the blue hours, while investment and maintenance (depending on maxium grid capacity used) are not reduced.

Why is this an issue?

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✓ An imbalance appears between the DSO costs and the DSO revenues.

✓ This adds uncertainty for the DSO: revenues will vary depending on DER generation. This can be significant with a high PV penetration.

✓ Today, to cover this risk, the DSO (backed by the regulator), has to increase the network charges (€/kWh) for all consumers.

Electricity bill

Electricity bill Electricity bill

Electricity bill

Electricity bill

✓ BUT, this is not a long term solution. The uncertainty issue is not solved, and consumers without generation are penalised.

Higher energy charges for all (€/kWh)

Tariffs should be more capacity-based rather than volume-based.

Other options to be investigated, complementary to the volume-based tariffs:

✓Special tariffs for prosumers?

✓Time of use tariffs ?

✓ Direct incentives (smart contracts) for the users having a larger impact on the grid?

✓Dynamic tariffs?

Preliminary questions

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✓Support to innovation

✓Cost reflectiveness

✓Sufficiency: network tariffs should ensure full recovery of all allowed network cost and reasonable return on capital

✓Market openness: network tariffs should not hamper innovative pricing for demand response and energy efficiency

✓Transparency: determination of tariffs should be transparent, auditable, consistent and easily understandable.

✓Non-discrimination: there should be no discrimination between customers of the same customer group

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Preliminary ideas submitted to the EU Commission - DG Energy

Documents

Stakeholder Workshop WP 5 Electricity markets and …towards2030.eu/sites/default/files/03 Zangrandi EDSO.pdf · Electricity markets and RES integration ... DSOs will continue to