In need for smart grids to facilitate smart electricity markets

On February 11th, 2014, CEDEC published a report called ‘smart grids for smart markets’ in which it expresses its view on the importance of smart grids, the current barriers to their implementation, and the role of the DSO as market facilitator. The report identifies the central role of the DSO concerning the deployment of the smart grid, as well as the interface between the smart grid and the market. Due to the their position as a natural monopoly and highly-regulated party, CEDEC puts forward the DSO’s responsibility in market facilitation, data management, metering and  rolling out of electric vehicles charging infrastructure.

The report describes a context of growing amounts of variable renewable energy, growing demand and growing generation connected to the distribution systems. The report highlights the paradigm shift from supply that adapts to the system demand, to demand that becomes less inelastic in order to adapt to the available electricity patterns. This shift causes a need for more active system management, especially in the distribution network.

System flexibility can be a valuable resource to maintain system adequacy, i.e. by managing peak demand, and system security, i.e. by managing the system balance to avoid network bottlenecks. Sources of system flexibility are found in storage possibilities, power to gas technology, electric vehicle to grid possibilities, and smart meters. Therefore, the utilisation of innovative ICT is key to facilitate the general management of the system. Congestion can be relieved through an intelligent management of the system by storing electricity or increasing demand when there is high supply and releasing electricity or reducing demand when supply is low.

The report then describes the need to lift barriers resulting from regulatory frameworks, financing of research and deployment, consumer acceptance, technical standards and market structures. In terms of regulatory frameworks the need to move from remunerating cost reductions to investments in innovation is emphasized. This can be done by adapting current incentive regulation mechanisms. Tariff design is also addressed which needs to evolve from volume-based towards capacity-based, as the main cost driver for DSOs is peak capacity availability. A mixed tariff structure based on the capacity of the connection and the volume used is proposed as well as dynamic retail pricing to reflect the state of the network (peak and off peak periods). In terms of financial barriers, the need is put forward to increase public funding for small and medium sized pilot projects in addition to the current larger projects being funded. Furthermore, consumers must have access to simple and transparent information while technical standards facilitating interoperability are needed. Finally, players must have the right market structure where they can sell and buy flexibility services on distribution level.

CEDEC puts forward the DSO as market facilitator, data hub manager, smart meter manager, and electric vehicle charging infrastructure driver. In terms of system management, there is a need for clear rules to purchase system services while avoiding inherent conflicts with other market actors such as aggregators. The DSO is seen as the ideal agent to manage the smart grids data hub due to a number of reasons. First, as the responsible party for system stability the DSO should not have to depend on commercial market parties for access to information on consumption patterns, actual loads, generation outputs and congestion. Second, as a neutral regulated parties, DSOs can provide access to data to interested parties without discrimination. Third, DSOs can be better controlled by the regulator in order to safeguard consumer privacy. Similarly, the DSO is seen as the owner and manager of the smart metering infrastructure to decrease the risk of creating barriers for supplier switches. In regards to electric vehicle charging infrastructure CEDEC proposes the DSO as the party responsible for the deployment of charging points in the public domain. The report suggests that the charging infrastructure should be a part of the regulated asset base of the DSO and the costs should be socialised among all consumers through the network tariff.

In the literature, the development of the right market structure is identified as one of the key elements to facilitate the integration of smart grid technology and methods. Defining the market actors, their roles and interactions is thus a very relevant discussion.With this document, CEDEC puts forward the DSO at the centre of the smart grids roll out and subsequent management due to its nature as a neutral regulated monopoly, its close ties to the consumer and its knowledge of the grid.  However, attention is to be paid towards the pros and cons of different market models, such as for instance the introduction of independent market facilitators, as is the case on wholesale level.

> Read the CEDEC Report ‘‘smart grids for smart markets’