A regulation upgrade for utilities disruption?

New York– KAPSARC WorkshopJean-Michel Glachant Director “Florence School of Regulation”@ European University Institute – Florence (Italy)

NO!From the future!

If any…Seen from the

past…

1/ The EU contextWhat was it about?

Two decades to build kind of Market based power industry “Unbundling” did cut the industry into two areas: • 1- The “market area” has: market incentives, open entry,

competition watchdog• 2- The “monopoly area” has: incentive regulation, monopoly

franchise, energy regulatorCore of EU incentive regulation was within low demand growth - then incentive regulation targeted:

*lowering costs of “grid & system” operation (OPEX)**linking “grid & system Op.” to wholesale market trade

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2/ Today&Future: 3 waves of disruptionWhat was it about?

• Wave of grid investment (said Euro “100bn” from 2015 to 2030) Continental scale internal market + EU common RES energy Policy (20% RES in year 2020)

• Wave of system decentralization EU RES are local or individual & not “Utility RES Portfolio obligation” + many grids are unbundled (TSOs from DSOs; both grids from supply)

• Wave of full “digitalization” smart grids, smart metering, big data + disruptive technologies storage, “market platforms”, “internet of things”

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3/ 3 waves of regulation disruptionWhat was it about?

• Wave of grid investment Incentive Regulation was to lower OPEX; with CAPEX being ROR > not framing efficient invest.

• Wave of system decentralization TSOs are few & regulators did learn; DSOs are hundreds & very heterogeneous – Markets were designed for national / wholesale; not local or retail markets // new services + locally produced & valued

• Wave of full “digitalization” + disruptive technologies 1/Designing right incentives for monopoly innovation into their “own system disruptions” is ; 2/Reducing asymmetry of information & knowledge production “Regulator / Operators” via “pilots & experiments” is , fuzzy & slow

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4/ 3 waves of regulation upgradeWhat was it about?

• Wave of grid investment EU energy regulators (CEER) & EU Agency (ACER) + EU Commission are already working on an EU upgrade > will clarify a lot this year

• Wave of system decentralization End(?) 2016 CEER & ACER will issue first comments or recommendations + Commission a proposal new Market & Grids legislation > will clarify more in 2017? Or only in 2018?

• Wave of full “digitalization” + disruptive technologies Much more fuzzy??? Even not clear if it could be made by “Energy regulation & policy” and not from “Digital economy & society regulation & policy”

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T&T experience for sharing data, assumptions & calculus• Issue: almost black-out of the entire continental power system in 2006

because grid operators made wrong assumptions about the state of neighboring systems when taking corrective actions

• Remedy: Regional Network Security Coordination Initiatives (Coreso, PSCI)

T&D relevance• Issue: if/when DSOs act as system operator to foresee & prepare for

congestion in distribution grids• Remedy: DSOs join these Reg. centers data, assumptions, & calculation

5/ Decentralization: from T&T to T&D cooperation (1)

T&T for coordinating allocation of grid with energy trade• Issue: inefficient use of border capacity because of separate clearing of

trade for (network capacity) and trade (energy markets)• Remedy: “coupling” of trade in adjacent energy markets with ex ante firm

grid capacity offered to energy trade

T&D coordinating allocation of grid with energy trade• Issue: if/when the T&D boundary would become a structural congested

bottleneck in the energy system that requires separate energy prices• Remedy: DSOs build “T&D market coupling” algorithm

6/ Decentralization: from T&T to T&D cooperation (2)

Unbundling

7/ Emerging businesses: Market Approaches

Old issue: unbundling TSO stricter than DSO, especially for small DSOs (TSOs will run data-hub in Nordic countries; proposal in D)

New issue: DSOs unbundled from utilities entering into new business (e.g. Alliander statups and Eandis energy efficiency advice and coordination for municipalities)

Market design

Public service regulation Is an issue for competition in the market, but let for competition for the market, e.g.

city tendering for EC charging infrastructure and third party market facilitation

Electric vehicle charging infrastructure: issue of roaming (with contract of other supplier), and fuel station billing (without contract)

Storage: price regulation in the market or competition for the market in case of locational market power

Market facilitation: assigned to third party in UK (Data Communication Company) and Italy (Acquirente Unico)

Scope of involvement (& third party access)

General principles: pilots with R&D budget (IR, NL, Italy), included in RAB in motivated cases (UK, NL “proven long-term market failures”)

Storage: max 50/100 MW and auctioning of capacity not used by DSO (UK pilot); separate business (SE)

Electric vehicle charging: assets financed by DSO R&D budget, but separated from RAB to allow transition towards market (IR)

Market facilitation: providing data to data hub and validation of data (Italy), data hub operator (BE), smart meter without “after the meter device functionalities, like display” (IR, NL)

8/ Emerging businesses: Role for DSO

www.florence-school.eu

To conclude? A decade long regulatory upgrade debate (efficient frame for investment wave) + (coherence for decentralized power systems) + (keeping doors, brains & wallets open to radical innovation)…

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Thank you for your attention

Email contact: jean-michel.glachant@eui.eu

on Twitter: @JMGlachant already >15 000 tweets

My web site: http://www.florence-school.eu