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.
[00:00:28] Speaker B: Hello and welcome. In this episode of the EU Energy Projects Podcast, I'm joined by Jose Pablo Chavez Avila from the B Flexible Project and Katerina Drivakou from enflight, both part of the NG Nexus Cluster.
Together we intend to explore how flexibility, smart grids, consumer engagement and new market models are helping Europe to build a more decentralized, resilient and decarbonized energy system.
From regulatory incentives for DSOs and flexibility markets to consumer centered platforms combining energy, mobility and even healthcare services, we will look at how EU funded innovation is moving from theory into real world implementation across Europe.
And to begin with, I'd like to ask both of you if you could please briefly introduce your projects and explain how they fit within the broader goals of the NG Nexus Cluster.
Jose Pablo, do you want to go first?
[00:01:26] Speaker C: Okay. Thank you. Thanks for this opportunity. So Be Flexible is a Horizon Europe project focused on one of the most critical bottlenecks of the energy transitions, which is how we design the regulatory customer strategies and market frameworks that actually incentivize distribution system operators, transmission system operators to procure flexibility rather than defaulting on traditional grid reinforcements. We work across real demonstrators in Spain, France, Sweden and Italy analyzing how regulatory schemes either enable or hinder the uptake of flexibility service within the energy nexus clusters. We complement projects like Inflate that Katerina and will comment shortly by providing the regulatory and market architecture and Be Flexible Ask specifically, once flexibility is available, does DSO have the right incentive to actually use it and likewise for customers?
[00:02:29] Speaker B: Katarina yes.
[00:02:30] Speaker D: Also Inflate is a project that focuses on how to bring flexibility from TSOs DSOs close to customers and in this context it is developing a collaborative platform of tools that is based on the concept of the data spaces with aim to utilize the cross sector flexibility potential enabling the design of consumer driven business model and also integrate energy with non energy services.
We have demonstrated this solution in five countries across Europe and I would say that since the aim of the Energy Nexus Cluster is to encourage the development of a cutting edge solution in the energy sector, it fitted just right with inflated objectives which include a group of solutions focusing on flexibility marketplaces, digital twins, data spaces and DSO coordination tools.
[00:03:31] Speaker B: And Jose Pablo Be Flexible focuses strongly on the flexibility markets and DSO incentives.
So why is regulatory design becoming such an important topic for the energy transition?
[00:03:42] Speaker C: In my opinion, regulation design is the hidden Engine in the energy transition, you can have the technology available, different platforms, smart inventors, inverters, demand response, battery storage. But if the regulatory framework rewards the DSO for building more cables rather than procurement of flexibility, technology itself won't deploy at scale. So most European DSOs today operate under the cost of service or revenue cap schemes that were designed in a world that networks were rather passive and demand growth was predictable. But these frameworks have a structural bias. They are based on CAPEX expenditures, which is typically favoring more CapEx than operational expenditures. Procurement flexibility service sits closer to operational expenditures in the accounting terms. So there is no incentives currently for DSOs in general to use flexibility.
So the rational thing of DSOs under many current framework is to reinforce the grid even when flexibility will be a most cost efficient option. So be flexible shows that this isn't just a theoretical problem. We have documented it empirically across different jurisdictions and the evidence is clear. Without targeted regulatory reform, flexibility markets will remain marginal regardless of how good the underlying technology is.
Furthermore, we focus on the market designs, mechanisms to prevent procure flexibility and the coordination among them. For instance, local flexibility markets, flexible connection agreements, network tariffs, all these mechanisms intend to unlock flexibility and their co design is critical to provide efficient residence.
[00:05:43] Speaker B: And Katarina, what inspired the broader consumer centered approach in enflight combining flexibility with services such as mobility and healthcare?
[00:05:54] Speaker D: It is widely discussed that citizens should be put at the center of the energy transition. And this is the goal I think most of the nowadays most of the European projects try to achieve.
So that was what we tried to do in inflate and this was an idea we had even from the start to design of the project where we wanted to focus on creating pathways for the citizens to provide flexibility to the grid directly, but also indirectly receive some of the benefits that flexibility can offer them. In that way for engaging citizens, it's important for the businesses to change the business model behind their interaction with the citizens. And that's what we wanted to do by integrated energy and non energy services.
The inflate approach is besides having the flexibility markets where someone can be active, a citizen can be active and directly offer their flexibility to the grid to use also mobility and healthcare services as a way of indirectly engage them and show them how it would be to offer this flexibility.
For example, we are developing a health monitoring app that will be provided as a side offer, let's say from the DSO in Spain with their other other products that they are offering to their customers. And this way maybe not the citizen can directly give flexibility, but it's the first way to offer them some services that we will have access to their data and then if they decide to provide flexibility, it will be easier for us to gain the intel we need.
[00:07:38] Speaker B: And both projects work extensively on consumer engagement and in practice, how difficult is it to convince consumers to participate in flexibility services?
[00:07:48] Speaker C: Yeah, customer is key to enable flexibility in the flexible project we develop different value propositions for customers.
We evaluate different options for consumers trying to understand which kind of contracts better fit different customer categories. And usually in especially in distribution we usually have a motto that is there is no size that fits all and customer engagement. And yeah, this is clearly true. We have to tailor different motivations from different customer classes to enable their participation in the flexibility delivery. And this means working closely with them co design contracts and get feedback to improve the incentives to provide to the customers.
[00:08:46] Speaker D: Katarina we're totally I think in line here with also be flexible. We have seen the same problems, let's say engaging consumers.
I would like to point out that it's a little bit different of making them interested in the concept of the project and the solutions we are offering and actually onboarding them in being more active in using them and paying for them and be active customers. It is important, as Jose Pablo said, to have in mind the specific profiles of consumers and also analyze the socioeconomic aspect of also where these customers are, what is the market, how are we going to approach them in the specific context, in the specific time.
So also in inflate what we did, we first analyzed the factor that affect the consumer engagement and the customer profiles along with the value proposition of each solution. And then we designed a detailed consumer engagement plan per demonstration country to approach them. And I would say that from the events that you organized and the discussions we had with them, we are pretty happy that these events were attended by 80 people and they showed also interest in what we are doing and in participating in their flexibility market platforms.
[00:10:23] Speaker B: Jose Pablo One particularly interesting aspect of be flexible is the discussion around the traditional CAPEX bias and grid investment.
And can you explain what that means and why it matters for Europe's DSOs?
[00:10:35] Speaker C: Well, for the CAPEX bias is the tendency of regulated utilities under certain incentive regimes to favor capital investments over operational solutions. And again, as I said before, these operational solutions include flexibility procurement. It rises because in many regulatory frameworks capital expenditures earns a regulated rate of return. So fixed remuneration, meaning that the more the DSO expense on physical assets, the more revenue it can earn.
Revenue operational expenditures, including flexibility does not provide the same return.
So in practice this creates a perversive incentive, let's say. So the DSO might choose to build more infrastructure like transformers, substations, Even when a portfolio of demand response assets or local storage will solve the same congestion problem at a lower cost, the network gets what we call a gold plate, so customer bills get higher than they need and flexibility ecosystem fails to develop.
So what be flexible demonstrates is that well designed regulatory schemes, for instance totex like approach like we see in countries like Portugal or a profit sharing mechanisms that is currently being implemented in Spain can neutralize this bias. When DSOs are rewarded to achieve the outcome efficiently, regardless of whether the solution is CAPEX or opex, they begin to genuinely evaluate flexibility as an alternative that shift the incentive design in what unlocks
[00:12:19] Speaker B: the market for flexibility and Katerina inflates testing solutions in different countries and climates and how challenging is it to replicate flexibility solutions across such diverse realities?
[00:12:33] Speaker D: Replicating flexibility solutions across all different countries and infrastructure is I would say moderately to highly challenging. The core challenges are coming from the underlying local infrastructure and the data availability we have in each location, and also from the market maturity and economic disparities that are evident in terms of the local infrastructure.
The applicability can be constrained by the local physical reality such as the network topology, the availability of building management system, the smart meter coverage and also the availability of flexible assets in the area. And in terms of the data quality, the physical infrastructure can limit whether we have real time smart metering data or whether the communication can be established seamlessly on the other side in regard to market maturity, the profitability that can be achieved in a local level by this solution and the financial viability of replicating these platforms varies entirely based on the local market maturity and the pace of the regional energy transition and the local tariff structures, which affects also the applicability of the solutions and also the systems. Operators in some areas can be reluctant to alter their operation processes to use new platforms and flexibility platforms, as Jose Pablo said, because sometimes they also miss the incentives to do so.
So all these factors affect the replicability of these solutions and there is a need for a detailed plan and analysis that needs to be done when we want to move the solution to another context.
[00:14:31] Speaker B: And from your perspectives, are Europe's current electricity market structures ready for large scale flexibility deployment or do we still have significant regulatory gaps?
[00:14:42] Speaker C: Great. Thanks Jaed. And by the way, I'm leading one of the Regulation Working Group, the Chair of the British Regulation Working Group and Katerina is the Vice Chair. So I think you have two of the voices on making regulatory changes and to answer your question is honestly not yet, but we are moving to the right direction and the gap is somehow narrowing. But still there is some work to do. The clean energy package, for instance, created a legal foundation. It recognizes the role of the DSOs in procurement flexibility. It introduces the concepts of non wireless alternatives and it opened the door to local flexibility markets for translating this framework into national regulatory practice has been slow and even as Katerina also mentioned before.
So what Be Flexible finds is that the main gaps are not the primary legislation.
They are in the secondary regulatory instruments. Again, sometimes they exist some laws or regulation at the European level, but they have not been completely transposed at the old regulatory levels. And the revenue determination methodologies, for instance, are missing the allowed cost treatment of flexibility payments are not in place yet in most of the countries there is an absence of a standardized product for for local flexibility markets and the procurement of rules for distribution networks are not in place.
Also, there is a lack of coordination still between transmission system operators and distribution system operators. So these are solvable problems. We have been working on solutions for some time, but they require regulators to actively update their toolkits, not just transpose some of the directives.
[00:16:36] Speaker D: I wanted to add that Jose Pablo covered the topic pretty thoroughly.
I just wanted to add that to do so, it's important also, I believe, for the project to also engage with the national regulatory authorities in the project.
So to work, let's say hand in hand to them, to be able in the demonstration countries of each project, to be able to interact actively with the policymakers. That's what we try to do also in the Inflate, where we have the regulatory authority of energy in Greece as a partner in the project, so that we can have this interaction between the project and the policymakers. And I think this is also a way to cover these existing regulatory gaps even more quickly.
[00:17:34] Speaker B: And both projects rely heavily on digitalization and data driven services.
And how do you balance innovation with concerns around things like cybersecurity, interoperability, data governance?
Would you like to start, Katerina?
[00:17:49] Speaker D: Yes, of course. The approach that we followed in Inflate, it's that we utilize the concept of data spaces, of course, balancing innovation with the strict cybersecurity interoperability. And that governance principle that we need to is the core challenge when we design the Inflate architecture.
So what we did is that Inflate data space addresses this balance by moving away from centralized data repositories. And instead we implemented a decentralized policy governance architecture that was Based on the International Data Space principles.
Under this context, the data are never pulled centrally, but they remain local at the provider side and is only exposed under explicit and machine readable contracts. Moreover, the architecture embeds an anonymization service which is running directly into the data exchange workflow. And the idea is that by applying this privacy preserving transformations through this anonymization service, before the data leaves the connector, the platform protects the privacy. And in terms of interoperability, the data spaces can offer also interconnection between.
I mean the idea in the inflate context was that the data space offers interconnection service using RESTful API sensation formats to map heterogeneous data assets into standard topologies. And we did that in a way where we could link our data space with other data spaces and have this, let's say, cross data space interoperability.
[00:19:36] Speaker B: Jose Pablo.
[00:19:38] Speaker C: Yeah, okay. Well, I think Katarina made a very concrete recommendations. I just want to also maybe refer to the EU policies and what this has been already suggested. So this is one of the areas where still to be done. I think from flexible perspective, the energy flexibility ecosystem depends on data flows of course, metering data, grid state data flexibility offer data.
So they're crossing multiple platforms, multiple actors and regulatory boundaries. So without a robust interoperability standards and a clear data governance rules, each local flexibility market risk of becoming close proprietary silo. And this is I think one of the elements that still has to be done and I think the Commission is currently working on that so that fragments of markets and rise barriers for entry on new flexibility providers are reduced. Also there is European directive the NSA2 about the implementation on cybersecurity. Implementation in the energy sector needs to be operationalized at a distribution level where we have thousands of small actors, including prosumers, aggregators and are becoming active participants in the market. So the risk are not just from large scale attacks, but also I think it's important to consider the proliferation of purely secure IoT devices. So be Flexible also provides in this regard recommendations to treat interoperability and cybersecurity as a precondition for market design and
[00:21:26] Speaker B: not after thoughts and Be Flexible combines traditional grid reinforcement with flexibility solutions. And. And I think a question that many people have is to what extent flexibility could eventually replace some network investments or the extent to which it would complement them.
[00:21:46] Speaker C: Yeah, thanks for the question. So yeah, indeed we believe from the project that flexibility will not replace network investments.
The network needs are increasingly enormous in the energy transition. So we really need to to expand our networks. But it's true that in certain cases flexibility can defer network investments or even can optimize it in some specific context.
For sure, it could be a substitute, but in very specific places. The key insight is that we need to have a cost benefit analysis in the be flexible that we did. And when the right question is not that flexibility or cables, let's say, but what is the least cost solution for each specific constraint and each specific location over a given time horizon. So in some cases it's true that they can be good complements and the fast growing areas of new loads. So we have enormous increasing of EV charging hubs, heat pumps, industrial demand that is being electrified. So the uncertainties about the future load profiles means investing in flexibility capabilities can significantly improve the planning efficiency on networks. And a cable once built, cannot be unbundled. But flexibility can provide this flexibility for network owners. So the long term picture is in my opinion, of course, a hybrid one where a backbone is well targeted to physical infrastructure, complemented by flexible and digitalized layer that handles dynamic location specific and constrained digits rigid that network cannot handle. So in this case, the flexible work is about making sure that dso have the tools and the incentives to find this optimal mix at the end that have a mix of flexibility together with traditional network investment.
[00:24:00] Speaker B: Okay, enflight. Also looking at business models and new revenue streams for consumers and what types of incentives are most effective in motivating participation.
[00:24:12] Speaker E: I would say financial incentives, meaning we need to build profitably demand response mechanism. And because we should not focus only on consumers that they want to be engaged because they also think the wider concept of the green transition.
Active demand side actors.
What our pilots showed are that active demand side actors are heavily motivated by having a cost benefit optimization and being able to use the tools that we are developing to access, let's say new
[00:24:52] Speaker D: revenue streams or have realized some decrease
[00:24:57] Speaker E: in their bills, in their electricity bills. And it's important to also have a provide to provide also transparent pricing mechanism that make the asset flexibility clearly profitable from the consumer. And another important factor that should be taken into account, especially when designing the solution, is that we need to minimize the administrative burdens. And when we are developing this kind of tools, we should make the way the business model operates streamline and have an automotive onboarding without having the consumer to check again and again different things, but making the process as smooth as possible.
And finally, as a more complementary, let's say factor in offering another incentive for the consumers is to reach a critical mass of local participation.
This is especially important for the flexibility markets the more they are in the market and the more liquid the market becomes, then it's even more.
It's more likely to be able to onboard more people and to close.
[00:26:15] Speaker B: I'd like to ask both of your projects place strong emphasis on scalability and replication and briefly what needs to happen for these solutions to move from pilots into the mainstream deployment across Europe?
[00:26:29] Speaker C: Yeah, I believe that there are many elements that we have been discussing on the scalability and replicability. Of course regulation is key. The transposition of European directives into national, but also even a national level at all regulatory levels. So really into sometimes operational procedures.
All that needs to happen to make our solutions scalable and replicable among different countries.
Second, I think is on standardization.
The need of common products, common data formats, common procurement rules across member states that this will help to reduce also the transaction costs and enable the pan European aggregators to operate that at scale. Third, I would say that is a capacity building. There are many DSOs, particular small ones that lacks of internal expertise to run flexibility market. So I think there is a need there for European support for capability development, not just on technological pilots. And this is a need to make sure that at different scales we have actors that can enable flexibility solutions.
Fourth is funding continuity. We need to have also a transition from pilots to commercial skill that requires bridge the financing the value of debt in some cases. So I believe EU instruments needs to be more explicitly oriented towards scaling up some of the validated solutions and not just funding new experiments, but make sure that the ones that has been proven can be continued in time.
[00:28:24] Speaker E: I would add to that focusing a little bit more on the technical scalability and replicability dimension, that interoperability of the technical solution is very important.
We need to build systems that can remain modular and components can be easily added or split and that the solution that we develop must interact with existing regional infrastructure without requiring highly customizing a country specific interfaces.
So this is also linked to the standardization and I think that's also why
[00:29:01] Speaker D: Jose Pablo put it like as the
[00:29:03] Speaker E: first element to be considered that solutions must align with widely accepted open protocols or implement startups like the siem, the common information model for operator data exchanges, so that they are easy to be deployed everywhere.
[00:29:25] Speaker B: Okay, good. Well, thank you. And on that note I'd like to thank you both Jose Pablo and Katerina for your insights and we look forward to following the project as they continue.
[00:29:35] Speaker E: Thank you very much for invitation Jonathan and Jose Pablo for an interesting discussion.
[00:29:40] Speaker C: Thanks. Likewise Katerina, thank you.
[00:29:45] Speaker A: You've been listening to the EU Energy Project's podcast at 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 areditaradimo. Thank you for joining us.
