Enabling a flexible future: new roles, market mechanisms and regulatory frameworks for the energy sector

Article authored by Matteo Troncia, Miguel Ángel Ruiz Hernández, Eliana Carolina Ormeño Mejía, José Pablo Chaves Ávila and Tomás Gomez San Román, from Universidad de Comillas

The power sector must evolve more efficiently and rapidly to meet current challenges, such as the uncertainty and variability in generation and demand due to the paradigm shift towards decentralized, decarbonized, and digitalized energy systems. A significant approach is to leverage the flexibility from connected resources like distributed generation, energy storage, and controllable loads, which can provide cost-effective and operational viable alternatives to traditional network reinforcement.

In this context, the BeFlexible project’s Deliverable 1.1 (D1.1) focuses on regulatory frameworks for the energy sector and market mechanisms to enable flexibility-centric services. It sets the groundwork for the project by proposing regulatory and market designs to foster flexibility deployment. The document outlines roles and responsibilities for emerging agents (e.g., aggregators, energy communities) and tools (e.g., baselining, submetering) to overcome current regulatory barriers. It also presents strategies for establishing remuneration schemes for flexibility usage and regulatory experimentation, as well as the efficient design of acquisition mechanisms for flexibility procurement.

New roles and responsibilities to enhance the overall system flexibility

In D1.1, a comprehensive analysis of regulatory frameworks for the energy sector contributes to the deployment of flexibility in the electricity sector. Among others, D1.1 analyses both European and some target countries regulations pertinent to energy communities, aggregators, and submetering. This examination and the resulting insights are pivotal for policymakers and stakeholders aiming to mitigate existing barriers for the integration of energy communities, unlock the potential of aggregation and enhance electricity market participation.

The analysis of the European legal framework for energy communities sheds light on the legal definitions, characteristics, and requirements of energy communities, identifying five legal entities that currently coexist. The analysis highlights the diversity of regulatory approaches in the European countries underscoring common challenges and gaps. The report emphasizes the necessity for specific, measurable requirements and suggests considering a broader spectrum of energy carriers. Furthermore, dynamic allocation coefficients are proposed to foster innovative business models. Local factors like population density and network characteristics are crucial for implementing energy communities in different contexts.

The analysis of the aggregators’ role underscores the importance of their integration for grid resilience, sustainability, and efficiency. D1.1 delineates existing regulatory landscapes across Europe, identifying synergies and disparities, and proposes a series of regulatory recommendations aimed to enable aggregators. Key suggestions include the need for defining mechanisms for imbalances responsibilities, rebound effects, and ensuring transparency.

The D1.1 exploration of baselining methodologies and submetering technologies highlight their potential to facilitate market participation. Submetering may enable participation from smaller-scale energy resources supporting numerous market phases, from prequalification to activation and monitoring. Their adoption, in contexts lacking widespread smart meter infrastructure, can capture granular energy data essential for efficient market operation and participant engagement.

Incentivizing the flexibility use: DSO remuneration schemes

The core infrastructure of the ongoing energy transition is the electric distribution system. The electricity distribution network operation is considered a natural monopoly; therefore, is key to ensure the provision of this essential service at an efficient price while maintaining an attractive business for the regulated company by defining well-functioning remuneration schemes.

The cost-of-service approach is a traditional remuneration scheme for distribution companies. This approach fails to incentivize cost-efficiency and may hinder the potential of flexibility solutions. However, this approach is still present in some European countries.

The multi-year revenue trajectory with profit sharing is a regulatory approach for defining the allowed revenue of distribution companies that incentivizes cost-efficiency while sharing the benefits of achieved cost-efficiencies with customers. This is the approach taken by Portugal and the UK.

Portugal presents a case that may serve as a transition model for countries with traditional remuneration schemes to help foster flexibility solutions. However, the Portuguese approach still maintains a bias towards capital expenditures that hinders the potential of flexibility for some use cases.

The UK presents a more complex approach (i.e. the TOTEX approach) with equal treatment of capital and operational expenditures, eliminating barriers for flexibility in the remuneration scheme. The example of the UK may serve as a model for other countries after transitioning through the Portuguese model.

Enabling flexibility use: regulatory experimentation

Enabling innovation may result in new products and services (e.g. flexibility solutions), facilitating the integration of new technologies, driving down system cost and achieving emission targets. D1.1 analyses past experiences and previous research to give recommendations for the design of regulatory experimentation frameworks.

The advisory role of the regulator is key for a well-functioning experimentation framework as it allows innovators to correctly identify regulatory barriers, if any, and helps regulators keep pace with innovators’ needs.

Regulators may implement a top-down (the regulator designs the regulatory changes that market participants can test) and/or a bottom-up (the innovators/applicants identify and apply for exemptions for new business ideas) approach for regulatory experimentation. The top-down approach favours regulatory learning, while the bottom-up approach allows the regulator to be aware of innovators’ needs.

International collaboration between regulators is another  key aspect that helps avoiding duplication efforts and errors, speeding up innovation.

As a final consideration, regulatory framework design is dynamic and should adapt to the current needs and objectives identified by the regulators.

Novel approaches to efficient design acquisition mechanisms for flexibility use

The flexibility potential available from service providers needs to be procured by means of acquisition mechanisms like network tariffs, flexible connection agreements, and local flexibility markets. D1.1 addresses the critical need for innovative flexibility acquisition mechanisms  for distribution system operator (DSO) services, such as congestion management and voltage control. The existing design of acquisition mechanisms presents some limitations as they are traditionally designed and operated independently without considering their potential for integration.

The D1.1 examines these acquisition mechanisms to exploit their collective synergies and identify their inherent restrictions. It includes a detailed exploration considering their constitutive characteristics as design dimensions and options, which describe the nature and functionality of each acquisition mechanism. Therefore, in D1.1, a methodological framework is proposed to systematically assess the interaction between these mechanisms to increase their collective benefits while addressing any potential inefficiencies that might arise from their interplay . The insights provided by D1.1 guides future research and practical implementations, where integrated acquisition mechanisms can effectively support the efficient deployment of flexibility use.

This article summarizes key takeaways from Deliverable 1.1, titled “Regulatory framework for fostering flexibility deployment: roles, responsibility of agents & flexibility mechanism designs” developed within the framework of the BeFlexible project. To access the complete document, please click here.

Stay tuned with BeFlexible by following us on LinkedIn and X!

Article authored by Matteo Troncia, Miguel Ángel Ruiz Hernández, Eliana Carolina Ormeño Mejía, José Pablo Chaves Ávila and Tomás Gomez San Román, from Universidad de Comillas

The power sector must evolve more efficiently and rapidly to meet current challenges, such as the uncertainty and variability in generation and demand due to the paradigm shift towards decentralized, decarbonized, and digitalized energy systems. A significant approach is to leverage the flexibility from connected resources like distributed generation, energy storage, and controllable loads, which can provide cost-effective and operational viable alternatives to traditional network reinforcement.

In this context, the BeFlexible project’s Deliverable 1.1 (D1.1) focuses on regulatory frameworks for the energy sector and market mechanisms to enable flexibility-centric services. It sets the groundwork for the project by proposing regulatory and market designs to foster flexibility deployment. The document outlines roles and responsibilities for emerging agents (e.g., aggregators, energy communities) and tools (e.g., baselining, submetering) to overcome current regulatory barriers. It also presents strategies for establishing remuneration schemes for flexibility usage and regulatory experimentation, as well as the efficient design of acquisition mechanisms for flexibility procurement.

New roles and responsibilities to enhance the overall system flexibility

In D1.1, a comprehensive analysis of regulatory frameworks for the energy sector contributes to the deployment of flexibility in the electricity sector. Among others, D1.1 analyses both European and some target countries regulations pertinent to energy communities, aggregators, and submetering. This examination and the resulting insights are pivotal for policymakers and stakeholders aiming to mitigate existing barriers for the integration of energy communities, unlock the potential of aggregation and enhance electricity market participation.

The analysis of the European legal framework for energy communities sheds light on the legal definitions, characteristics, and requirements of energy communities, identifying five legal entities that currently coexist. The analysis highlights the diversity of regulatory approaches in the European countries underscoring common challenges and gaps. The report emphasizes the necessity for specific, measurable requirements and suggests considering a broader spectrum of energy carriers. Furthermore, dynamic allocation coefficients are proposed to foster innovative business models. Local factors like population density and network characteristics are crucial for implementing energy communities in different contexts.

The analysis of the aggregators’ role underscores the importance of their integration for grid resilience, sustainability, and efficiency. D1.1 delineates existing regulatory landscapes across Europe, identifying synergies and disparities, and proposes a series of regulatory recommendations aimed to enable aggregators. Key suggestions include the need for defining mechanisms for imbalances responsibilities, rebound effects, and ensuring transparency.

The D1.1 exploration of baselining methodologies and submetering technologies highlight their potential to facilitate market participation. Submetering may enable participation from smaller-scale energy resources supporting numerous market phases, from prequalification to activation and monitoring. Their adoption, in contexts lacking widespread smart meter infrastructure, can capture granular energy data essential for efficient market operation and participant engagement.

Incentivizing the flexibility use: DSO remuneration schemes

The core infrastructure of the ongoing energy transition is the electric distribution system. The electricity distribution network operation is considered a natural monopoly; therefore, is key to ensure the provision of this essential service at an efficient price while maintaining an attractive business for the regulated company by defining well-functioning remuneration schemes.

The cost-of-service approach is a traditional remuneration scheme for distribution companies. This approach fails to incentivize cost-efficiency and may hinder the potential of flexibility solutions. However, this approach is still present in some European countries.

The multi-year revenue trajectory with profit sharing is a regulatory approach for defining the allowed revenue of distribution companies that incentivizes cost-efficiency while sharing the benefits of achieved cost-efficiencies with customers. This is the approach taken by Portugal and the UK.

Portugal presents a case that may serve as a transition model for countries with traditional remuneration schemes to help foster flexibility solutions. However, the Portuguese approach still maintains a bias towards capital expenditures that hinders the potential of flexibility for some use cases.

The UK presents a more complex approach (i.e. the TOTEX approach) with equal treatment of capital and operational expenditures, eliminating barriers for flexibility in the remuneration scheme. The example of the UK may serve as a model for other countries after transitioning through the Portuguese model.

Enabling flexibility use: regulatory experimentation

Enabling innovation may result in new products and services (e.g. flexibility solutions), facilitating the integration of new technologies, driving down system cost and achieving emission targets. D1.1 analyses past experiences and previous research to give recommendations for the design of regulatory experimentation frameworks.

The advisory role of the regulator is key for a well-functioning experimentation framework as it allows innovators to correctly identify regulatory barriers, if any, and helps regulators keep pace with innovators’ needs.

Regulators may implement a top-down (the regulator designs the regulatory changes that market participants can test) and/or a bottom-up (the innovators/applicants identify and apply for exemptions for new business ideas) approach for regulatory experimentation. The top-down approach favours regulatory learning, while the bottom-up approach allows the regulator to be aware of innovators’ needs.

International collaboration between regulators is another  key aspect that helps avoiding duplication efforts and errors, speeding up innovation.

As a final consideration, regulatory framework design is dynamic and should adapt to the current needs and objectives identified by the regulators.

Novel approaches to efficient design acquisition mechanisms for flexibility use

The flexibility potential available from service providers needs to be procured by means of acquisition mechanisms like network tariffs, flexible connection agreements, and local flexibility markets. D1.1 addresses the critical need for innovative flexibility acquisition mechanisms  for distribution system operator (DSO) services, such as congestion management and voltage control. The existing design of acquisition mechanisms presents some limitations as they are traditionally designed and operated independently without considering their potential for integration.

The D1.1 examines these acquisition mechanisms to exploit their collective synergies and identify their inherent restrictions. It includes a detailed exploration considering their constitutive characteristics as design dimensions and options, which describe the nature and functionality of each acquisition mechanism. Therefore, in D1.1, a methodological framework is proposed to systematically assess the interaction between these mechanisms to increase their collective benefits while addressing any potential inefficiencies that might arise from their interplay . The insights provided by D1.1 guides future research and practical implementations, where integrated acquisition mechanisms can effectively support the efficient deployment of flexibility use.

This article summarizes key takeaways from Deliverable 1.1, titled “Regulatory framework for fostering flexibility deployment: roles, responsibility of agents & flexibility mechanism designs” developed within the framework of the BeFlexible project. To access the complete document, please click here.

Stay tuned with BeFlexible by following us on LinkedIn and X!

Insights from EUSEW 2024: embracing energy flexibility in Europe’s transition with customers at the core

One more year, the European Sustainable Energy Week was held in Brussels from June 11th to 13th, gathering over 2.000 participants in sessions and speaking booths. The event fostered vibrant discussions on innovative solutions, regulatory frameworks, and the latest advancements and challenges in sustainable energy.

The BeFlexible project was delighted to be part of the program, hosting the session titled “What about flexibility? How customers can improve power systems.” Across two panels, participants explored how adopting customer-centric approaches can greatly enhance Europe’s energy flexibility and support its broader transition efforts, while also discussing the potential and challenges of integrating this customer-driven flexibility.

BeFlexible extends sincere thanks to all participants for their active involvement, collaborative spirit, and commitment to innovation. Gratitude is also extended to everyone who joined the #EUSEW2024 session, both in person and online, and engaged with their questions, enriching the dialogue.

Watch the full video of the session here

Unlocking local energy flexibility potential: are customers ready to embrace innovation?

The first panel delved into the readiness of customers to adopt innovative solutions for local flexibility. It was emphasized that the energy transition requires putting customers at the center of flexibility efforts. Developing platforms that facilitate data exchange across the value chain to activate various flexibility mechanisms is essential. However, reaching and engaging the final customer remains a significant challenge.

Another key point was the need to design flexibility markets that integrate energy-related services. Engaging local authorities is crucial for connecting with customers and bringing them closer to these initiatives. The panel also highlighted the necessity to revisit the basics of how flexibility can be promoted, indicating that issues like competition and pricing need fundamental reevaluation.

  • Moderated by Ms. Tzeni Varfi, E.DSO.
  • Mr. Veli-Pekka Saajo, Council of European Energy Regulators (CEER).
  • Mr. Fernando David Martin Utrilla,  i-DE (Iberdrola) and BeFlexible project.
  • Mr. Tomi Medved, University of Ljubljana and STREAM project.
  • Ms. Katerina Drivakou, UBITECH ENERGY and ENFLATE project.
  • Mr. Josh Roberts, REScoop.eu.
  • Ms. Rose Matthews, Smart Innovation Norway.

Scaling demand response in Europe: lessons learned from field-proven solutions

The second panel focused on scaling demand response across Europe by learning from existing solutions. It was noted that while Europe has a strong framework for demand response, there are still technical barriers to overcome. Demand response is not a future concept but a present reality, and it is advocated to start with non-core processes in industries to build familiarity and confidence before scaling up.

The importance of avoiding past mistakes in new markets, such as billing issues and data protection concerns, was underscored. Raising consumer awareness and ensuring regulatory policies protect consumers are essential. Business models need to be developed to turn energy flexibility markets into profitable ventures, offering consumers a range of choices.

  • Moderated by Ms. Marion Malafosse, SmartEn.
  • Mr. Thomas Bobinger, Federation of German Consumer Organisations, VZBV.
  • Mr. Sebastien Condom, Voltalis.
  • Ms. Lindsay Sugden, NIBE.
  • Mr. Charles Verhaeghe, Compass Lexecon.
  • Ms. Olivia Sicurani, Sympower.

Flexibility in energy systems: not a futuristic goal but a reality

The session emphasized that flexibility in energy systems is not a distant vision but a present reality across various markets. It highlighted existing technologies and business models for demand response, emphasizing the need for consumer engagement, trust-building, and effective regulatory implementation. Some additional final remarks:

  • The necessity of customer engagement in the energy transition narrative was highlighted, especially in the context of changing political and regulatory landscapes.
  • Demand response is already happening and should be scaled up. There are existing business models, technical solutions, and satisfied consumers that need to be showcased.
  • There was a call for smart implementation of existing laws and the creation of a robust framework to support these initiatives.
  • It is important to look at other countries’ experiences with demand response to adopt best practices.
  • Building trust is crucial, and efforts should be made to avoid eroding consumer confidence.

Watch the full video of the session here: