EURELECTRIC policy workshop on the Business Challenges of Distribution Companies:

Finance, Regulation, Smart Metering

sponsored by

26 November 2009, Brussels

‘Smart Grids: More Intelligent Electricity Distribution Will Improve Retail Markets and Support the Low-Carbon Energy Drive’

Distribution System Operators will have a central role in both facilitating the transition to a low-carbon economy in Europe and in improving the way retail electricity markets function, and the development of ‘smarter’ grids will be a crucial element in meeting these challenges, speakers at the third session of the EURELECTRIC Policy Workshop on Business Challenges of Distribution Companies: Finance, Regulation, Smart Metering on 26 November underlined. “Smart grids will facilitate the inclusion of renewable energies sources into the system and also provide a platform to support the development of electric road transport,” said EURELECTRIC Secretary-General Hans ten Berge. “DSOs are central in the drive towards smart retail markets, and they must therefore be financially incentivised by regulators to make their networks smarter,” added Networks Committee Chairmen Peter Birkner. Mr Birkner told the audience that with demand-side management based on a smart electricity system, “we can create a decentralised power plant that can compete with peak load plants.” ‘Smart’ technology is more or less already available but the question of how to finance firstly field tests and then large scale roll-out still remains, he underlined. 

Ricardo Klatovsky from IBM agreed that “smart grids will be at the heart of smarter utilities,” as the grid will be transformed from a rigid, analogue system to a dynamic, automated energy delivery system. This step-change will empower the consumer and improve customer-satisfaction by providing close to real-time, detailed information about energy use. Smart grids have enormous potential in the drive to reduce emissions of greenhouse gases, added Mr Klatovsky, estimating that smart networks could reduce the US power’s sector CO2 emissions by 14% by 2020.

Peter Jan Peters of Netherland’s Enexis outlined his company’s plans for a large number of smart grid pilot projects – inter alia to foster the use of solar panels and support deployment of electric vehicles.  “We will facilitate such projects and support all of our customers who want to do something to improve environmental sustainability,” he stressed.

Outlining for the workshop participants the issues relevant to DSO regulation and smart grids discussed at the recent European Citizens’ Energy Forum (CEF) in London, European Commission Director Heinz Hilbrecht  pointed out that the recently-adopted Third Energy Liberalisation Package, besides reinforcing the role of national regulators, also makes specific provisions calling for the roll-out of smart metering. The Commission has created a Task Force on Smart Grids, with a 20-month mandate to come up with a clear proposal on the regulatory framework required for smart grids. The Commission has managed to pull together all relevant stakeholders in this field to provide representation on the Task Force,  including EURELECTRIC.  Three working groups have been set up under the Task Force: one to examine the functionality of smart meters, one on such regulatory issues as data confidentiality and information gathering and one looking at the roles and responsibilities of the various players, Mr Hilbrecht told the workshop.

"Ensuring that electricity retail markets work properly for the customer is a basic aim of the European electricity industry and the essential task of Distribution System Operators (DSOs) is to “facilitate effective, well-functioning retail markets,” Manuel Rodrigues da Costa, Director at Portuguese company EDP Distribuição and Chairman of the EURELECTRIC Working Group on Distribution Regulation and Policy, told the workshop on Business Challenges of Distribution Companies: Finance, Regulation, Smart Metering on 26 November. An effective retail market should be able to “provide the customer with options, allowing him/her to choose the ‘best supplier’” and “allow suppliers to offer options and services best tailored to customer needs,” he explained. This implies three elements: firstly to “operate, maintain and develop the network to guarantee power quality,” secondly to “provide non-discriminatory access to the network” and thirdly “to work as an information hub to guarantee the customer a reliable and swift change of supplier”.  The consumer “should always be the main focus” when defining policy measures and assigning roles and responsibilities that will ultimately affect the retail market design and the behaviour of the various actors of the retail markets,  underlined Mr da Costa.

Presenting an overview of the European electricity distribution business, Philippe Chanel from Capgemini stressed that the “complex structure of the industry is making evaluation of the performance of DSOs difficult”. The European DSO landscape is composed of countries in which the distribution industry is highly fragmented, such as in Germany where numerous small DSOs coexist with distribution companies that are part of larger Vertically Integrated Companies (VICs). Mr Chanel stressed that DSOs must be “neutral” in their dealings with other actors, in order to facilitate fair competition on the retail market.

Petter Sandoy, Division Manager at BKK NET AS and Chairman of the EURELECTRIC Working Group on Distribution Customers and Operation, explored in detail the role of DSOs as information hubs. He pointed to “problems linked to the complexity of data handling,” explaining that the installation of smart meters will lead to “hourly meter value readings 52 weeks a year” which will in turn result in an “increase in back office activities”. Making reference to the earlier speech of European Commission official Heinz Hilbrecht, Mr Sandoy told the audience he was personally convinced that “the three weeks supplier switching period limit made mandatory by the third Electricity Directive will lead to profound changes in DSOs’ business models.” He saw a clear need for harmonisation and standardisation of data exchange and customer processes at EU level so as to facilitate supplier switching, stressing: “These issues should be carefully considered if we want a European market for retail”. Mr Sandoy also made a strong call for “the establishment of a single metering point ID in all European countries to enhance and simplify the switching process”.
 
While stressing the need for DSO-neutrality in facilitating the retail electricity market, a goal set out in both the 2nd and 3rd Electricity Directives which make legal, informational and functional unbundling mandatory, Johannes Mayer from Austrian regulator E-Control nevertheless made it clear that “we are not talking about ownership unbundling of DSOs”. However a recently published report from regulators’ group ERGEG indicates that “unbundling is on the surface, but it is not integrated within all the processes of the companies,” ie in such areas as shared services and employee career structures within VICs.Mr Mayer saw no reason why “DSOs should not give advice to customers” on their energy use and help customers to the price comparison of the suppliers active in the DSO’s geographical area. When it came to assessing the role of DSOs as market facilitators he reacted positively to the proposal of Mr da Costa to set out more accurate indicators and further stressed the “need to reach a common understanding between industry and regulators in 2010” as to how active DSOs should be in facilitating retail markets.