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How flexibility markets can drive the energy transition

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The need for more flexible electricity markets to match demand with supply is becoming more urgent as distributed renewable generation resources increase, and several platforms are emerging to help system operators balance the grid as an alternative to building more infrastructure.

Association for digital and decentralised energy solutions smartEn recommends some important regulatory changes that should be introduced in order to foster the development of these valuable flexibility tools in a paper published this week: Design Principles for (Local) Markets for Electricity System Services.


"The recently adopted European Clean Energy Legislative Package lays out new rules for network operators to procure flexibility resources for electricity system operation from the market. Our new position paper defines core design principles for such markets to drive the sustainable energy transition and empower consumers in a secure and cost-effective electricity system," says Frauke Thies, smartEn’s executive director.


The Clean Energy Package says that Distribution System Operators (DSOs) should procure flexibility services where these are cheaper than grid expansion.


As the digitalisation of the energy sector progresses and smart meters, energy storage, electric vehicles, electric heating and cooling appliances become more prevalent, there is a growing opportunity to operate the grid more efficiently and manage the timing of this demand rather than building new capacity.


However, this will require a big shift in the way the electricity markets function, and whether economic incentives will be enough to change consumer behaviour on one side and utility culture on the other – remains to be seen.


Some measures have already been set out in the revised European Electricity Directive but have yet to be written into many member states’ laws, perhaps most importantly allowing for cost-recovery based on total expenditure rather than just on capital investments, which has only been implemented in the UK so far.


This would incentivise system operators to invest in digital solutions and software rather than physical infrastructure alone to resolve grid congestion problems.


Some sort of financial incentive should be introduced to address the market disconnect, in that system operators may underestimate the value of delayed investments and the reduced risk of stranded assets because as they are regulated these costs are passed through to consumers.


Investment decisions above a certain threshold for each voltage level should be qualified with an assessment of the cost of the non-wire alternative, smartEn suggests.


Read the full article here.