Episode Transcript
[00:00:10] Speaker A: Welcome to the EU Energy Projects Podcast, a podcast series from Enlida and France focusing on the clean energy transition for the European Union and the EU Commission funded energy projects that will help us achieve it. My name is Aretid Daradimu. I. I am the editor of the EU Energy Projects Podcast and your host.
In this episode of the EU Energy Projects Podcast, we are diving into one of the most pressing and debated questions in the energy world today. Is flexibility the key to unlocking a clean, secure energy system or is it a costly detour? To unpack this, we are joined by Michael Villa, Executive Director of smarten, and Joachim Gruber, Staff Managing Director Technology at netse. Together we shall explore the role of EU funded flexibility projects, market and policy challenges and what the future holds for Europe's evolving energy system. Let's get into Michael Joaquim, thank you very much for being here today. How do you define flexibility in the context of the energy system? Joaquim, would you like to start?
[00:01:34] Speaker B: Yeah, I mean you can define it quite easily I think in a very generic way. It's you adjust consumption or generation due contrary to what you have planned. That's flexibility. No matter what the reason is, you're going to change it. If there is an incentive, if there is a rule based approach, you're just changing it contrary to what you have planned.
[00:01:58] Speaker C: And if I can maybe complement Indeed flexibility means many different things based on the different providers of the systemic flexibility that's needed because it's going to increase. So flexibility historically has been generally provided by generation big generation power plants. But now we need to consider more the flexibility that can be provided by demand side resources. And demand side flexibility is indeed what is represented by smarten. So the European Business Organization that I'm leading. So these are new flexible resources that needs to be increasingly activated in order to support an increasing system flexibility that is due to an increase in volumes of variable renewable generations.
[00:02:52] Speaker A: Joaquim, what are your main concerns or let's say criticisms regarding increasing flexibility?
[00:02:58] Speaker B: I don't criticize it in the way Michael just said. I think flexibility is good for the system. It is on one hand good to optimize the wholesale market to have a better price building due to more liquidity and the same as in a distributed energy system. For sure you do need more and more distributed flexibility as the basis of system services, then they help the system as well. My concern is more often that there's a lot of wishful thinking if it comes to flexibility in distribution grids, which means it's for us or for us or for me in that case. Flexibility in most cases, no matter if it is generation or consumption, is something that we should use on the long run. We should use it to optimize the way and the time we're going to extend our grid, but that's it. And for sure in 2% of any cases to prevent a lot of investments for very few occasions where we would need it the physics.
[00:04:11] Speaker A: Michael, do you agree with Joaquin?
[00:04:13] Speaker C: It's not a question of bad or good developments of flexibility. Flexibility is gonna be needed anymore and we need to activate that from the demand side resources in order to support, as I was saying before, an increasing variable energy system and also to support distribution system operators to alleviate or mitigate congestions. Flexibility from the demand side can also support transmission system operators to keep the system in balance. Flexibility from the demand side can also be provided as a resources to reduce wholesale electricity prices for all. So there are different advantages of having debt resources activated at distribution system levels. We see major potential at the moment. Distribution system operators are not setting up local flexibility markets to procure to use the flexibility of connected consumers. And if this is going to be done more in higher volumes, we will have an optimized use of existing networks. The European Commission, notably the Joint Research center is saying that the average utilization rate of low voltage networks is 21%. So there is a huge potential that needs to be done in order to maximize the use of connected consumers in a market based way. So that's why we need to have local flexibility markets to support the system. This is only a way of helping the system to work in a much more efficient way. What is needed first of all an incentive to the distribution system operators to go in that direction. So the national regulatory authorities needs to incentivize these OPEX investment that distribution system operators needs to make in order to procure the flexibility from connected resources via the support of trading platforms set up by independent market operators, but also the use of aggregation of virtual power plants that collect pool the distributed flexibility from different assets and reply in the activation of these resources in a market based way based on the systemic needs identified by the distribution system operators. This is the contribution of flexible demand to distribution system operators needs really just.
[00:06:56] Speaker B: To add or not to admin this is the thing that the major concern we're speaking about the system.
The DSO is not responsible for system. This is the tso. The TSO has to define the needs and our task is more or less for me that we have to build the grid that is Capable to provide the services needed by the system.
With having a congestion market on a very local perimeter, this is taking away liquidity from the system, from the market for the system.
[00:07:33] Speaker A: So is it safe to say that the current energy system is not flexible enough? And if so, why would you think? Joaquin?
[00:07:43] Speaker B: I think for the moment that the system is flexible enough in terms of maybe after Spain, not anymore that much. But we said at the moment there is enough flexibility to respond to all the needs of the system. But this is the limited resources or this is limited prices there, which means if we would have a more liquid market, prices would go down and which makes the system in itself cheaper. Which is I think an objective that we should all try to obtain.
[00:08:15] Speaker C: Yeah, the point here is that the system flexibility needs, in particular the daily system flexibility needs, meaning the intraday fluctuations will dramatically increase from now to 2030 by 133% and from 2030 to 2050 they will increase by 250%. So yes, the system is generally in balance. But because of these increasing, dramatically increasing needs, then we need to activate as many flexible resources as possible, including from the demand side and then maybe to revert to what Joachim was saying before.
Because of these systemic needs, then flexible resources should support distribution system operators, which should not have only a responsibility in building new lines, rainfalls in the grid, but because they are neutral market facilitators as set by the European electricity market design, they need to facilitate the activation of these flexibility from connected consumers in a way that is allowing flexible consumers to contribute to a smarter, more efficient operation of their networks. What we don't want and what we don't think is actually efficient is that distribution system operators directly disconnect connected consumers. This is not demand side flexibility. This is not a way to profit from flexibility from decentralized energy resources. And this is actually going to undermine electrification because I mean we see that happening in many different countries. Also the Netherlands, where, where it's let's say a frontrunner in local flexibility markets or anyway smart management or use of networks. When distribution system operators are disconnecting the charger of electric vehicles, then you are undermining the uptake of e mobility. While otherwise if there will be a market based way to activate these resources, then consumers with the support of the flexible demand management industry, so specific business models will be capable of deciding to react or not to that system need and being remunerated for that kind of contribution. And this is something that can happen or should happen very quickly if you don't want to simply and Only invest in reinforcement of the grids.
That's the tendency that has been developed until now to only focus on CapEx, to only focus in grid reinforcement, to only focus on wires. Now we need to think about non wire alternatives because they are more cost effective there.
[00:11:22] Speaker B: I think. No, that's not true. Because I give you the example, it's quite easy to extend a grid, a line, a feeder line. In the low voltage level. You may pay €50,100,000.
This is an investment you're doing over 40 to 50 years, which means €2,000 a year, which means we have normally 40, 50 households. So you can give the household every year a maximum €40 to participate in this flexibility markets. This is not taking into account the process cost, the balancing process that have to be maintained as well. Not the investment on the DSO level and as well on the consumer level to provide flexibility. Because it's not like built in. In the system of the customer that he can participate in these markets. So there's additional costs.
[00:12:25] Speaker C: But Joachim, we need to also think that the flexibility from kinetic consumers should not be only activated for dsos services.
[00:12:36] Speaker B: No, no, no, they're definitely not. I think that they should be. They should be. They have to be activated even I think it's. It's mandatory that they are available for the wholesale market as well. For the ancillary services for the market there.
But the moment I'm going to have the constraints in my grid, they will never see these markets. So then these markets, these overlaying markets will never see this flexibility. If I already do have on a low voltage, a medium voltage level, the constraints and the congestions. So they can never participate due to my physical limitations. So my way. And they were coming back to the DSO is the market facilitator. As a market facilitator, a lot of people understand that we have to create markets. No, we have to facilitate markets, which means we have to build the grids, the physics to allow the customers to respond to price signals from the wholesale market, from the system market as well.
We are the neutral data handler, because this is also market facilitating. All processes that needs data, we can do as a trusted person. Because we have no personal interest as a DSO to do so.
[00:14:00] Speaker C: Exactly.
[00:14:01] Speaker B: And therefore we are facilitating the market by providing data and managing data.
[00:14:07] Speaker C: Exactly. But indeed dso have different tools instrument in order to provide these signals to consumers to contribute to an efficient management of the system. Until now we have been focusing only on local flexibility markets. But another alternative will be for distribution system operators to define cost Reflective network tariffs that could indeed avoid peaks in loads of kinetic consumers. And there are different ways to make this happen across Europe. There are some examples in France, in Flanders, in Spain, in Slovenia. And the most innovative project is currently in development of Switzerland. And this is another type, this is more an implicit type of providing priced signals through network tariffs to connected consumers in order that they can optimize the use of the existing grids to reduce up to 23% the peak in the network, which would then ultimately then also lead to a 20% reduction in network cost. And because of this, reduction of network cost will also have an advantage for consumers because consumers will have a reduction of €70 in per year in their network component in their electricity bills. So there are different alternatives that distribution system operators could consider in order to make this flexible demand an advantage for them. If this is not going to happen, we are simply going to have more peaks. And if we are just going to have more peaks in consumption, we just need to have more reinforcement of the grid. How long does it take to have these full coverage and reinforcement of the grids with only passive consumers? Lot of time and lot of money. This is not the way that is.
[00:16:19] Speaker A: Cost effective, I think, and you already mentioned it. Joaquim. The blackout attracts Spain, Portugal and parts of Southern France on the 28th of April. And I was wondering if there was a more flexible and interconnected perhaps grid, would such a blackout have been avoided? Or was it, you know, not a matter of flexibility? Joaquin, what do you think?
[00:16:46] Speaker B: I don't think anything at the moment because I think there are the specialists analyzing what are really the reasons. The rest is speculation. And this is not my thing in that case, because there is depending too much on it, but partially blackout not long ago in the UK just showed that a high degree of digitization at that time was the reason for the blackout. So nobody thought about it, or maybe somebody thought about it, but not about the consequences.
So this is something.
But this needed an analyzer of more than three months and the report is quite detailed and quite good and I think we've all learned from it. And I hope that the thing will happen as well from the Spanish incident. Still, I think the interconnectors between Spain and France might need some improvement.
[00:17:40] Speaker C: I think. Yeah, I totally agree with what Joachim said. I mean, it's really premature. We as Martin welcome the fact that NSOE and ACER are setting up an expert group to investigate their reasons. What at this moment we can say is that definitely that at the moment the Iberian Peninsula is an island. So indeed the more connection with the continent, the better it will be. I think that if we would have been in the same context of what happened in the Iberia Peninsula, but in Germany, because of being in the center of Europe, maybe all the interconnection would have contributed to alleviate. But this is indeed just a speculation. What I can say is that flexible demand is anyway extremely important to increase the system resilience and to provide frequency services to transmission system operators. So this is something that needs to be reinforced. And here we are talking in particular about transmission system operators. So transmission system operators needs to set up fast frequency response products that are market based and that are are open to demand side solutions as well energy storage facilities, because indeed they can provide a fast rapid response. And so they would have also maybe contributed to alleviate all these cascading events that happened in the iberian Peninsula on 28 May. So this is something that at the moment is unluckily not happening, in particular in Spain, where indeed the ancillary services are having limitation, technical limitations to the participation of the demand. And as I was saying before, we needed to have as many resources participating and contributing to systemic needs, in particular frequency response or frequency containment response, or any way all balancing markets and ancillary services that could have indeed contributed to having increased system resilience.
[00:20:02] Speaker A: I want to go a little bit back again to policy and regulation that you mentioned, Michael, at the beginning of our discussion. What role in your opinion should policy and regulation play in promoting or restricting energy flexibility from your diverse points of view? I would like to start with you, Michael, and then you Joaquim, if, if you can.
[00:20:27] Speaker C: It's extremely important. So our sector depends on the rule of the game, meaning the electricity market design. And so all the rules that allow demand to operate and to play indeed in the electricity power system. So rules are extremely important. I would say that we have been very happy with the new policy framework that has been developed over the past seven years. Seven years ago we did not have any role to tackle the enabling framework or the barriers that are currently limited in flexibility to be activated. But now we have 70 articles over six directives or regulations. So they are binding legislations that all Member States need to implement as quickly as possible. But this is not happening. So there are some rules already defined in the electricity market design of 2019 that are still not implemented. And because of that, last year SMARTEN developed an implementation guidebook. So really to explain these regions and to suggest ways on how Member States needs to implement these Rules in a as harmonized as possible way across Europe because indeed we do not need 27 different schemes. We needed to have harmonized rules as much as possible so that flexibility can be activated, activated across borders in a smooth and seamless way. We think that this will need to happen very rapidly because if this is not going to happen, as I was saying, we are just going to increase or experience many several congestions at local level. We are going to have many curtailments of renewable energies that are just going to kill than the business models of renewables producers and we are just going to increase costs for consumers being from a household to energy intensive industries and yeah, we cannot afford that.
[00:22:39] Speaker B: Yeah, I think regarding regulation, I think what I do read quite often is that everybody says things have to be market based flexibility products there. As a DSO I would like to have a more open approach which means a market approach can be a good one but also rule based. And every other schemes should be in the game as well. And in that moment it also should depending on the situation up to the DSO to choose out of this toolbox. A mandatory market based flexibility market, especially for low voltage and medium voltage grids is quite often, I think not the best one. But definitely if the market is liquid enough, market base is still the best price finding tool to have in the box. Therefore I think this is something we should keep always in mind.
The other thing is where harmonization is not too bad, but it takes time. Even if Michael says, and I agree in general that speed is the key, we do know from market processes and from adjustings IT systems, it takes a long time from the consultations even on a national level, but this is something on the European level. A harmonization would take a decade. There I'm quite sure about, which is sad to say, but I think we should be realistic of what is feasible.
Doesn't mean that it is not an aim that we should all have.
[00:24:20] Speaker C: Yeah, I agree, but in this case, I mean hopefully the network code on demand response might help.
And actually we have big expectations. If a network code is defining ways for DSO TSO to procure flexibility in an harmonized way that will set the scene for disharmonized approach. However, in the current draft there are a lot of terms and conditions that needs to be defined at national levels and then exemptions and so on. And so indeed we are just going to have 4,000 different schemes, as many DSOs. And yeah, this is just going to create more complexities than nothing. So voila, this is an opportunity. We hope that the European Commission and ACR are grasping that together with tso, DSO and the flexible, the money management industry.
But still, yeah, at the moment the hopes are there.
Let's try to get to that objective.
[00:25:33] Speaker B: I completely understand Michael, because we have seen it in Germany with a scheme for congestion management or another congestion management by managing the consumption of the customer, where it's a rule based approach, where we are obliged to offer flexible tariffs.
But every DSO in Germany was free to set the price spread of this tariff. So every flexible provider now has to face 8 to 900 different tariffs, which is not manageable, which is really an issue, I think. But I think in the, the regulator understood it and maybe we will see an adjustment to that in the future.
[00:26:23] Speaker A: So Michael, on the 20th of May in Brussels we're having the latest Smart End summit which is called Great Flexpectations. By the way, congratulations on the name. It is amazing. Can you tell us a little bit about it?
[00:26:39] Speaker C: Yeah, thanks a lot. So yeah, this is the biennial summit of our industry. So the flexible demand management industry. And we want indeed address some of the topics that we have discussed during this podcast. But we want indeed to demonstrate that flexible demand does not happen as magic. You need to have technologies, you need to have services, you need to have business models set up by the flexible demand management industry in order to support dso TSO to allow consumers to reduce their energy bills, to even get remuneration because of the flexible that can provide to the system, the opportunity that the flexible demand management industry can provide to energy intensive industries to keep producing in Europe while increasing their competitiveness and how the flexible demand management industry can actually support for a more resilient energy system. So this is an extremely important crucial clean tech industry. It needs to be recognized as such. Until now there has been a lot of focus on the generation, the renewable generation industry. But we are understanding more and more that only focusing on generation might create issues. We need to integrate in a cost effective way these variable renewables and the flexible demand.
Flexible demand management industry is indeed the industry that can make this happen.
So join us for this day of our summit on the 20th of May in Brussels. There are over 30 speakers, over 10 sponsors. So it's going to be very interactive and insightful opportunity to exchange with us the flexibility management industry, but also transmission system operators, national regulatory authorities, European and national policymakers. So you are all invited. And Joachim, definitely you are going to be one of our guests.
[00:28:55] Speaker A: I hope I know for sure that I'll be one of your guests. Michael, I'm looking forward to attending Grateful Expectations in Brussels on the 20th of May.
Joaquim Michael, thank you both very much for this really, really interesting discussion and looking forward to rediscuss flexibility with you in the near future, perhaps in a follow up episode. Thank you both very much.
[00:29:21] Speaker C: Thank you.
[00:29:22] Speaker B: Thank you. See you soon.
[00:29:26] Speaker A: You've been listening to the EU Energy Projects Podcast, a podcast brought to you by Enlit and Friends. You can find us on Spotify, Apple and the Enlit World website. Just hit subscribe and you can access our other episodes too. I'm Aretita Radimo, thank you for joining us.
