The energy market: many shades of grey

Energy and electricity are usually associated with the colour green. Not so for professor Leonardo Meeus: “Today, grey is the colour. Not a boring grey though. An exciting grey”. He explains why.

The new market model

The energy landscape has changed considerably in recent times. Twenty years ago, almost the entire energy value chain was in the hands of a single player. Nowadays there are different bodies responsible for different areas: producers, transmission system operators (TSOs), distribution system operators (DSOs) and retailers.

The market does not stand still. In the sidelines of the distribution system, a myriad of new activities have sprung up which, in contrast to the TSOs and DSOs are not regulated at a national or EU level. “For example: market facilitation, installation and operation of charging infrastructure and local electricity storage. However, it is not yet clear to whom these activities belong. Each country is making its own choices,” says Leonardo. “There are still grey areas but they make it all the more interesting and exciting for me as a researcher.”

Who facilitates the market?

As long as large-scale electricity storage remains too expensive, supply and demand must be closely matched with each other. All activities associated with this come under the heading of “market facilitation”; data exchange through a data hub is one of these. “Up until now this data exchange was typically dealt with by the TSOs. However, with the rise of distributed generation, some of the market activities have shifted to the distribution level. Even consumers produce electricity nowadays. They have become prosumers. But then the question arises as to who should facilitate that market?

The Scandinavian countries have opted to leave this to the TSO. In Germany too, a proposal of this nature is on the table. In Belgium, the five largest DSOs have grouped together in the joint venture Atrias, which is to fulfil the role of a data hub. France and Austria are thinking along the same lines. In the UK and Italy, an independent third party has come into play. “You see this happening more and more: wherever there are grey areas you will see totally new stakeholders emerging alongside the existing ones, the TSOs and DSOs”.

Who is in charge of charging infrastructure?

There is little debate about a charging point in your garage. That is yours. But what about charging points in the street? You could consider them as part of the distribution network and then there is something to be said for making DSOs responsible for their installation and operation. But according to Leonardo, it is not that simple. “Think about petrol stations. They are operated by retailers who have often also provided the infrastructure. And a maker of electric vehicles such as Tesla can also have good arguments for rolling out a network of charging points. It is therefore logical that different countries have also made different choices here”.

The Netherlands and Sweden leave the initiative up to the market. They are waiting it out. Ireland, on the other hand, is going full steam ahead with electric vehicles to meet the European emission standards. This is why Ireland has already asked one of the DSOs to roll out a pilot project. “Time to market can be a good reason to involve DSOs. In the Netherlands and Sweden, individual cities can opt to make faster progress with charging infrastructure. Amsterdam has put it out to tender.”

Who has got the batteries?

Local electricity storage in batteries is nothing new from a technical point of view. What is new, however, is for someone like Elon Musk to succeed in making home batteries trendy. “His Powerwall wouldn’t be out of place in many a living room,” laughs Leonardo. “Everyone with his or her own battery system! Do we want that? Or would we rather have a larger battery for the neighbourhood? That might be cheaper than 100 small ones. And if we are talking economies of scale, do we want the responsibility for the infrastructure to be in the hands of TSOs or DSOs? Each option has its supporters”.

In Germany up to recently, anyone who installed solar panels was able to get subsidies for the purchase of batteries. In Italy, the TSO can invest in some installations and DSOs can also propose pilot projects, as in the UK.

Consistent policy

According to Leonardo, some countries will be more inclined than others to allocate a role to DSOs for activities in the grey areas. “For example Belgium and the Netherlands. There you have fully independent DSOs and the number of parties is limited. In other countries you sometimes have hundreds of other, smaller stakeholders.”

“Whatever choice you make, it is consistency that is important,” he believes. “So if regulators see a role for DSOs to play they must ensure that there are sufficient incentives to innovate. Those incentives can be incorporated into legislation, as is the case with innovation funding”.

Policy choices

As part of the DSO chair, Vlerick, with the support of its partners Alliander and Eandis, have studied the situation in different countries. The observations were brought together and supplemented with a framework for policymakers and regulators. “We don’t tell them what choice is best to make but we do tell them what they need to look out for when making choices and we give examples of successful implementations. For regulators that are still undecided, our policy note contains some useful guidelines. Those who have already made a choice are invited to pause to reflect on it.”

Nonetheless, there is one caveat: “I understand all too well why different countries take different approaches. After all, it is not a clear-cut situation. But sooner or later we are going to have to weigh up the advantages of freedom of choice against the disadvantages of non-standardisation. That has to occur for each one of these new activities. Which is precisely what we are still planning to do with our chair.”

Do you want to know more?
The conclusions and recommendations from the study and the conceptual framework developed as guidance for policymakers and regulators are described in the policy noteEmerging regulatory practice for new business related to distribution grids” by Professor Leonardo Meeus (Vlerick Business School, Florence School of Regulation) and researcher Samson Hadush (Vlerick Business School).

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