The advent of variable renewable energies and distributed energy resources), coupled with the decommissioning of conventional power plants, calls for the development of new approaches to system operation and the sourcing of ancillary services. In an increasingly decarbonised and decentralised system, such solutions are essential for optimally managing the network, solving congestions and maintaining the operational reliability of the power system.
Eurelectric releases today a report showcasing different steps to procure flexibility solutions on a market-based approach. As the European Commission prepares for the development of Network Code on Demand Side Flexibility early 2022, this report offers a unique, first-mover guidance on the topic, establishing a common terminology, as well as developing a comprehensive and integrated approach on the interactions between market parties and system operators.
The report was presented in detail during the public event "Flexibility: The enabler for a clean energy future?".
What does flexibility mean?
Eurelectric defines flexibility as the ability of a market participant to set the level of injection and/or consumption of an individual asset or a set of aggregated assets at a chosen value, to deliver a service to a system operator and to facilitate daily network management and network development planning, mainly on the distribution system operator side.
The procurement of flexibility services following a market-based approach means that system users (active customers, flexible demand, small scall generation and storage operators) can usefully “sell” the ability to set the level of injection /consumption of their assets at a chosen value, which matches the system operators’ needs for daily grid operations. Such operations include the network optimisation, fixing local congestions, for instance.
Why are flexibility solutions needed?
Power systems are structured and engineered to effectively accommodate the effects of uncertainty and variability as regards energy demand and availability of resources. Yet, the race to net-zero emissions is changing the way electricity is generated, brought to and used by consumers.
First, the carbon-intensive electricity generation is progressively replaced by clean energy sources, with renewables becoming predominant. By 2030, 500 GW of renewable capacities will come online, 70% of which will be connected by at distribution grid level. Flexibility solutions are therefore needed to cancel the effects of uncertainty and variability of a system with high levels of renewables.
Second, consumers are becoming active market participants. Electric vehicles, heat pumps with storage, enable their users to withdraw electricity from the grid when the supply is high, and push it back into the network at times with low generation. Similarly, the uptake of self-generation capacities, such as solar panels, enables customers to use and inject electricity into the grid. All these transformations, shift the nature of interactions between consumers and grid operators, offer opportunities demand-side management.
Third, the role of distribution networks is evolving, to accommodate higher shares of renewables as well as an increase in electricity demand. Introducing flexibility measures that can support the match between supply and demand would reduce the need for physical infrastructure reinforcements and expansions.
To make the procurement of flexibility services a reality, an increasing number of flexibility platforms are being developed across Europe, notably in countries where the number of congestions is very high, such as UK, the Netherlands, Scandinavian countries.
Those platforms are considered as “marketplaces” facilitating the flexibility transaction, from publishing the system operator needs for local flexible capacity, facilitating contractual procurement, through to operation and financial settlement. There is a wide range of market design options for such platforms which aim at meeting the specific needs of local and national energy markets.
In addition, the EU legislator has already set a range of rules related to the procurement of distributed flexibility encouraging Member States to provide incentives to distribution system operators to procure flexibility services in accordance with transparent, non-discriminatory, and market-based procedures.
EU countries are currently in different stages to develop market processes to enhance flexibility. However, in the long run, the procurement of flexibility services is expected to become as a sustainable solution for solving congestion scenarios and to position Europe as a front runner in the global green economy race.
While it is not intended to get a fully harmonised and standardised European process for the procurement of flexibility solutions, sharing good practices at European level and establishing common European overarching principles related to distributed flexibility may increase the liquidity on flexibility markets to ultimately enhance the development of flexibility solutions.
Which are the five chronological steps for distributed flexibility procurement?
The report consists of detailed explanations on each element of the following sequence
- The preparatory phase. Distribution system operators identify their need to solve or prevent congestion. It encompasses the product definition and the pre-qualification process.
- The forecasting & planning phase. The forecast modelling of grid utilisation allowing to identify potential congestion risks.
- The market phase. The tender process, comprising the bid collection and evaluation (both in long-term and short-term contracts).
- The monitoring and activation phase. The activation of selected bids to solve the congestion and the system operator cooperation up to real-time.
- The measurement, validation & settlement phase. The validation of the delivery of the flexibility service.
What the six overarching principles that should guide developments further?
- Transparency for market parties on the overall process and the outcome of distribution system operator (DSO) decision making, but also concerning the definition of DSO needs and the tendering processes.
- Data visibility, especially transparent information of network needs under clear rules to promote market participation and avoid unwanted market behavior. Data must be visible, free and easily accessible and machine readable.
- Coordination of needs among neighboring system operators (whether TSO/DSO or DSO/DSO )- between market processes (e.g. congestion management/balancing).
- Value Stacking, any Flexibility Service Provider should be able to use their asset(s) to provide services to multiple markets and hence access multiple revenue streams.
- Incentives or adequate remuneration schemes, set by the national regulatory authorities (NRAs) are needed for the efficient provision of flexibility services while traditionally, remuneration schemes induced DSOs to invest only in grid reinforcement. They should be improved to incentivise the use of the most cost-efficient solutions by DSOs, including the procurement of flexibility.
- A technology neutral approach to the product definition and the design of the market platforms. This requires an agnostic framework, including for aggregated resources.