European Distribution System Operators for Smart Grids

Consultation response on the preparation of a new renewable energy directive for the period after 2020 February 2016

1

General comment EDSO for Smart Grids (EDSO) welcomes this publication from the European Commission (EC) on

the preparation of a new renewable energy directive for the period after 2020. The current

directive has fueled renewable growth and its recast should pave the way for a decarbonised

energy future and limit the current regulatory uncertainty. Indeed, the 2020 deadline is close,

and a clear regulatory framework is needed to bridge the gap between 2020 and 2030.

Distribution System Operators (DSOs) are facilitating the transformation of the power system,

by connecting most of the renewable energy sources (RES) to the grid. This role will become

even more imporant as RES are expected to grow due to a combination of support schemes and

declining technology price.

The transition will require to turn existing grids into “smart grids”. According to a study produced

on demand of the EC, DSOs will have to invest €215bn by 20301. As neutral market facilitators,

DSOs will accommodate RES - whichever the target is - but they have a vested interest in doing

it in a cost efficient way.

In addtion to EDSO’s detailed answers to the public consulation, we would like to highlight the

following points:

More RES will translate into more (and smarter) grids

Contrary to popular belief, more renewables will not translate into less electricity grid. On the

contrary, siting a large share of RES at local level will require upgrading local grids, which were

not designed to connect small generators. DSOs should be enabled and incentivised to invest in

smart network management solutions, instead of traditional grid reinforcement.

Support schemes should not create revenue uncertainty for distribution companies

Support schemes for renewables are useful tools to reach the European energy policy objectives,

however some of them - such as net metering - create a significant revenue uncertainty for

DSOs. The European Commisssion and/or ACER should list best practices for support schemes.

New roles must be granted to DSOs to manage their networks efficiently

DSOs have to rethink network management to accomodate electricity flowing from the central

system to consumers, and vice-versa. Consequently, DSOs need extended responsibilities and a

larger toolbox, including: general principles for network control and congestion management,

the ability to monitor and interact with grid users, and the right to procure system services.

Better local planning is key to use RES efficiently

Connecting distributed renewable energy sources where most efficient for society, implies to

take into account a number of parameters: potential energy ouput, cost of connection, grid

capactiy, level of energy demand, etc. Striking the right balance between these parameters

requires a close cooperation between RES project developers, local authorities and network

operators. The EC should raise awarenees about best practices for stakeholder coordination.

1 Imperial College London, NERA Economic Consulting, DNVGL, « Integration of Renewable Energy in Europe », June 2014

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1. General approach

Questions:

1. To what extent has the RED been successful in helping to achieve the EU energy and

climate change objectives?

Comments. To what extent did implementation measures for the RED as well as external

factors (technological development, financial crisis, security of supply concerns and related

market interventions) affect the effectiveness and efficiency of achieving the objectives?

Please identify and ideally also quantify the direct and indirect costs and benefits such as

macroeconomic effects, competitiveness effects, innovation, cost and cost reductions,

environmental and health effects of the RED.

2. How should stability, transparency and predictability for investors be ensured with a

view to achieving the at least 27% renewable energy target at EU level? Please

indicate the importance of the following elements:

Very

important

Important Not very

important

Not

important

No

opinion

Forward looking strategic planning of

RES development is required by EU

legislation

X

Best practice is derived from the

implementation of the existing

Renewable Energy Directive

X

Regional consultations on renewable

energy policy and measures are

required

X

Very successful Successful Not very successful

Not successful No opinion

X

The RES target set in 2009 kick-started the deployment of renewable energy sources across

Europe. Since the entry into force of the directive and the generalisation of RES support

schemes, the installed capacity of wind turbines and photovoltaics systems skyrocketted.

The ensuing additional stress on distribution networks triggered significant spending in

research, development and innovation (R&D&I). As shown by the JRC, DSOs spent 70 million

euros on smart grids research, development, innovation and demonstration each year,

during the last ten years.

These research efforts have created numerous jobs. According to the International

Renewable Energy Agency, 653.000 jobs in Europe were directly or indirectly linked to

renewable energy technologies in 2014 (see “IRENA Renewable Energy and Jobs – Annual

review 2015”).

3

Member States consult on and adopt

renewable energy strategies that serve

as the agreed reference for national

renewable energy policies and

projects

X

The Commission provides guidance on

national renewable energy strategies

X

Comments. Any other view or ideas? Please specify. What are the lessons from the RED

(mandatory national targets, national plans, progress reports etc.)?

3. Please rate the importance of the following elements being included in Member

States' national energy and climate plans with respect to renewable energy in

ensuring that the plans contribute to reaching the objectives of at least 27% in 2030.

Very

important

Important Not very

important

Not

important

No

opinion

Long term priorities and visions for

decarbonisation and renewable

energy up to 2050

X

In relation to national/regional

natural resources, specific technology

relevant trajectories for renewable

energy up to 2030

X

Overview of policies and measures in

place and planned new ones X

Overview of renewable energy

trajectories and policies to 2050 to

ensure that 2030 policies lie on the

path to 2050 objectives

X

Qualitative analysis X

Trajectories for electricity demand

including both installed capacity

(GW) and produced energy (TWh)

X

Measures to be taken for increasing

the flexibility of the energy system

X

Predictability is a key issue for investors, since the return on investment for RES spans over

multiple years. As connection costs for RES developers play a key role in defining the

business case, their transparency must be guaranteed.

Several countries have tried to make RES development more predictable and to send clear

locational signal to investors. For instance, France created a planning tool for the

deployment of renewable energy sources. Since 2011, each region is in charge of

developping a 10-year Regional Schemes for Connecting RES to the Network (SRRRER,

“Schémas Régionaux de Raccordement au Réseau des Energies Renouvelables”). These

plans are established jointly by local authorities, national authorities, network operators

(both TSOs and DSOs) and stakeholders. They are based on a forecast of connection

demands in the coming years and therefore the need for new infrastructure. Stemming from

this planning tool, transparent connection and network tariffs are devised for producers.

These network tariffs are also designed to reflect the costs incurred by network operators.

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with regard to renewable energy

production

Plans for achieving electricity market

coupling and integration, regional

measures for balancing and reserves

and how system adequacy is

calculated in the context of renewable

energy

X

8. How could renewable electricity producers be fully or partially eligible for support in

another Member State? Which elements would you include in a possible concrete

framework for cross-border participation in support schemes? Any other

consideration? Please explain.

9. Please assess what kind of complementary EU measures would be most important

to ensure that the EU and its Member States collectively achieve the binding at least

27% EU renewable energy target by 2030:

Very

important

Important Not very

important

Not important No opinion

EU-level

incentives such as

EU-level or

regional

x

All of the above measures are necessary to reach the targets agreed upon at EU-level. The

current regulatory framework is characterised by uncertainty. Policy measures at national

level have repeatdly changed over the last years (e.g. abrupt revision of RES support schemes

in several countries, discontinuation of some generation technologies to the benefits of

others, etc.).

These sudden changes impact the energy sector, DSOs included, as they are supposed to

maintain the system stable and are responsible for long term investment and network asset

management.

Limiting uncertainty requires some planning and higher coordination between member

states. Although longer-term (30 or 50 years) planning is relevant, ten-year or fifteen-year

time spans represent the best suited timeframe for planning network investments.

Moreover, measures aiming to enhance energy efficiency and policies promoting the

deployment of electric vehicles should be more thoroughly taken into account when devising

RES objectives.

Firstly, a cost-benefit analysis should be conducted to make sure that these cross-border

support scheme mechanisms are be cost-efficient. Secondly, in case the need for these

mechanisms is proven, any prohibitive transaction costs should be avoided. These costs

could for example relate to exchanges of metering data between Member States, or ex-post

checks of generation facilities across Member States.

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auctioning of

renewable energy

capacities

EU-level

requirements on

market players to

include a certain

share of

renewables in

production,

supply or

consumption

x

EU-level

financial support

(e.g. a guarantee

fund in support of

renewable

projects)

x

EU-level support

to research,

innovation and

industrialisation

of novel

renewable energy

technologies

x

Enhanced EU

level regulatory

measures

x

10. The Energy Union Framework Strategy sets the ambition of making the European

Union the global "number one in renewables". What legislative and non-legislative

measures could be introduced to make/strengthen the EU as the number one in

renewables? Has the RED been effective and efficient in improving renewable energy

industrial development and EU competitiveness in this sector?

EU-level support to research, innovation and industrialisation for novel renewable energy

technologies is very important. The EU directly supported a large number of smart grids

related projects through the FP6, FP7 and Horizon 2020 programmes.

This support should not wane. For smart grids, all stakeholders would benefit from further

funding being channeled to projects focusing on the priorities defined in the Grid+Storage

roadmap (http://www.gridplusstorage.eu/).

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The manufacturing of renewable energy technologies is only one aspect of the

decarbonisation of the power sector. The integration of various generation technologies and

new types of consumers and market players (e.g. aggregators) in the power system is

another challenge that electricity distribution companies are currently overcoming.

The EU should not only focus on developing the competitiveness of PV panels and wind

turbines manufacturers, but also help system integrators (i.e. TSOs and DSOs) to further

develop and showcase their expertise, on technology, innovation and market facilitation by

funding relevant projects through Horizon 2020, EFSI and other appropriate mechanisms.

Support to the development of RES should now focus on the most cost-effective solutions,

and encourage DSO to experiment new and more economic tools.

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2. Empowering consumers

Questions:

11. How would you rate the importance of the following barriers for consumers to

produce and self-consume their own renewable energy?

Very

important

barrier

Important

barrier

Not very

important

barrier

Not important

barrier

No opinion

Self-consumption

or storage of

renewable

electricity

produced onsite

is forbidden

X

Surplus

electricity that is

not self-

consumed onsite

cannot be sold to

the grid

X

Surplus

electricity that is

not self-

consumed onsite

is not valued

fairly

X

Appliances or

enabler for

thermal and

electrical storage

onsite are too

expensive

X

Complex and/or

lengthy

administrative

procedures,

particularly

penalising small

self-consumption

systems

X

Lack of smart

grids and smart

metering systems

at the consumer's

premises

X

The design of

local network

tariffs

X

The design of

electricity tariffs

X

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12. In general, do you think that renewable energy potential at local level is:

☐ Highly under-exploited

☐ Under-exploited

☐ Efficiently / fully exploited

☐ Over-exploited (i.e. beyond cost-effectiveness)

☒ No opinion

Consumers should be free to use their solar panels or other small-scale DER as they please,

as long as the costs induced by their use of grid services, including insurance against periods

when it is not possible to consume one’s own generated electricity, is reflected in their bill.

One way to solve this issue is to switch to distritbution network tariffs mainly based on the

capacity of the connection, and not on the electricity consumed by small consumers. This

proposal has been further described in the EDSO paper “Adapting distribution network tariffs

to a decentralised energy future”.

To integrate DRES, DSOs need smart grids. This needs innovation and implicates higher risks

for DSOs, that should be rewarded by NRAs. The regulatory models traditionally used for

calculating DSOs’ revenues tend to favour capital investment (capex), with a rate of return

applied to the regulated asset base. However, smart grid investments are usually

accompanied by rising OPEX (e.g. if ICT services are to be contracted) and/or lead to more

CAPEX short term (as more innovative technology might be more expensive), which might

disincentivise the DSO to understake such investments due to the negative effect on its

profits. Regulatory frameworks must be revised across Europe to drive smart grids

investment.

With regards to smart meters, their deployment is currently underway and close to 70% of

European consumers should be equipped by 2020. Nevertheless, the current absence of

smart meters does not prevent consumers to self-consume their electricity. More

information on current smart metering deployment are available on www.my-smart-

energy.eu

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13. How would you rate the importance of the following barriers that may be specifically

hampering the further deployment of renewable energy projects at the local level

(municipalities and energy cooperatives):

Very

important

barrier

Important

barrier

Not very

important

barrier

Not

important

barrier

No opinion

Lack of support from

Member State

authorities

X

Lack of administrative

capacity and/or

expertise/

knowledge/information

at the local level

X

Lack of energy strategy

and planning at local

level

X

Lack of eligible land for

projects and private

property conflicts

X

Difficulties in clustering

projects to reach a

critical mass at local

level

X

Lack of targeted

financial resources

(including support

schemes)

X

Negative public

perception

X

Giving a definitive answer to this question is difficult as renewable energy potential is

exploited differently across the EU.

Firstly, it should be noted that local use of renewable energy sources should not be an

objective per se. Overall system optimisation will bring more benefits to consumers that an

addition of very local power systems.

The siting of distributed energy resources directly impact their cost-effectiveness. Installing

a wind farm or a PV system in a rural area far from consumption zones may not be cost

efficient, while siting the same generators very close to consummers will prove a good

investment. The policies and mechanisms created to support RES have usually not taken this

fact into account and may have lead to installing RES in areas where it is non economic for

society.

To improve the siting of renewable energy at local level, operators of (non-residential) RES

should be offered reduced locational connection charges in order to incentivise them to

connect in areas requiring less grid reinforcement, and thus costing less to society.

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14. Please rate the appropriateness of stronger EU rules in the following areas to remove

barriers that may be specifically hampering the further deployment of renewable

energy projects at the local level :

Very

appropriate

Appropriate Not very

appropriate

Not

appropriate

No

opinion

Promoting the integration of

renewable energy in local

infrastructure and public services

X

Supporting local authorities in

preparing strategies and plans

for the promotion of renewable

energy

X

Facilitating cooperation between

relevant actors at the local or

municipal level

X

Facilitating access to targeted

financing

X

EU-wide right to generate, self-

consume and store renewable

electricity

X

Measures to ensure that surplus

self-generated electricity is fairly

valued

X

Harmonized principles for

network tariffs that promote

consumers' flexibility and

minimise system costs

X

The main barriers for the development of RES at local level are planning and financing. The

other barriers are of a lesser importance.

To overcome the first barrier, local authorties should cooperate more with DSOs. Network

operators involvement facilitate their integration of RES into the existing power system or

allows suitable redesigning of this system consistently with the projects.

The definition of harmonised principles for network tariffs to minimise system cost while

promoting consumer’s flexbility would be welcome. However, these principles should not be

binding: detailed regulation of local networks should be dealt with by national or regional

regualtors, as a matter of subsidiarity.

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5. Adapting the market design and removing barriers

Questions:

18. In your view, which specific evolutions of the market rules would facilitate the

integration of renewables into the market and allow for the creation of a level playing

field across generation technologies? Please indicate the importance of the following

elements to facilitate renewable integration:

Very

important

Important Not very

important

Not important No opinion

A fully harmonised

gate closure time

for intraday

throughout the EU

X

Shorter trading

intervals (e.g. 15

min)

X

Lower thresholds

for bid sizes

X

Risk hedging

products to hedge

renewable energy

volatility

X

Cross border

capacity allocation

for short-term

markets (i.e., some

capacity being

reserved for

intraday and

balancing)

X

Introduction of

longer-term

transmission rights

( > 3 years)

X

Regulatory

measures to enable

thermal, electrical

and chemical

storage

X

Introduction of

time-of-use retail

prices

X

Enshrine the right

of consumers to

participate in the

market through

demand response

X

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19. Currently, some exceptions from the standard balancing responsibilities of generators

exist for energy from renewable sources. In view of increasingly mature renewable

generation technologies and a growing role of short-term markets, is time ready to in

principle make all generation technologies subject to full balancing responsibilities?

☒Yes, in principle everyone should have full balancing responsibilities

☐No, we still need exemptions

Please specify: If exemptions remain necessary, please specify if and in which case and why

exemptions would still remain necessary (e.g. small renewable producers, non-mature

technologies)?

As distributed capacities are playing a growing role regarding the power system balance,

DSOs are more and more involved in the balancing mechanism and facilitate the

participation of distributed energy resources. Consequently, exposing a majority of market

players, including renewables, to balancing responsibilities appears as a natural step for the

completion of the internal energy market.

As RES technologies are becoming more mature, a new market design is needed to integrate

them into the internal energy market. This evolution does have an impact on DSOs, to which

most RES are connected.

In addition to the need for new investments in distribution networks, DSOs will also have to

take on new roles, such as the ones described by the project “Evolvdso” (www.evolvdso.eu).

For instance, they will increasingly need to monitor the actions of market players on their

grids and to prevent congestions on medium voltage grids. They may also procure ancillary

services from their grid users (as TSOs are used to do today). The energy market will have to

evolve to take into account the contraints of electricity distribution networks.

To be efficient and provide true benefit to the system, market rules need to be consistent

with each other (e.g. a 15-minute trading interval and a 15-minute imbalance settlement

price do not bring the expected benefits if most of the renewables are not exposed to the

market) and backed up with a cost benefit analysis.

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20. Please assess the importance of stronger EU rules in the following areas to remove

grid regulation and infrastructure barriers for renewable electricity deployment:

Very

important

Important Not very

important

Not

important

No

opinion

Treatment of curtailment,

including compensation for

curtailment

X

Transparent and foreseeable

grid development, taking into

account renewable development

and integrating both TSO and

DSO level and smart

technologies

X

Predictable transparent and

non-discriminatory connection

procedure

X

Obligation/priority of

connection for renewables X

Cost of grid access, including

cost structure X

Legal position of renewable

energy developers to challenge

grid access decisions by TSOs

X

Transparency on local grid

congestion and/or market-based

incentives to invest in

uncongested areas

X

As pointed out at the beginning of this document, more RES will require a reinforcement or

an extension of existing grids. In some regions where the grid hosting capacity for

renewables reaches its limit, a congestion management system is needed, including rules for

curtailement. The role of DSOs will have to evolve to enable the deployment and opertion of

smart grids.

With regards to transparent grid development, several members states have already taken

the initiatives to publish regional plans, that enable DER project promoters to sit their wind

farms of PV systems where connection will be less costly for society (and network operators).

France has now required each of its region to publish a “Schéma Régional de

Raccordement au Réseau des Énergies Renouvelables” which list the construction

works expected in the medium term, the expected cost of such grid extension or

renewal, the timeline of the work and the available hosting capacity of the grid for

new RES plants. These plans are prepared by network operators, open to public

consultation and finally approved by the regional representative of the state

(“préfet”).

In Spain, similar plans are produced for each Autonomous Community.

This type of plans could be replicated in other member states. Nevertheless, binding

European rules should only be used if they have a clear added-value. For instance, for

congestion management and curtailement, the principle that DSOs can use these tools to

manage their network could appear in a European text, but the specific details (e.g. cost

allocation, compensation for curtailement…) should be defined at national or regional level.

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21. Which obstacles, if any, would you see for the dispatching of energy from all

generation sources including renewables on the basis of merit order principles?

Should there be any exemptions in some specific cases?

☐ Yes, exemptions are necessary

☒ No, merit order is sufficient

22. Please assess the importance of stronger EU rules in the following areas to remove

administrative barriers to renewable energy deployment:

Very

important

Important Not very

important

Not

important

No

opinion

Creation of a one stop

shop at national level to

allow for more

streamlined permitting

procedures

X

Online application for

permits

X

A defined maximum time-

limit for permitting

procedures, and effective

consequences if deadline

is missed

X

Harmonisation of national

permitting procedures

X

Special rules for

facilitating small-scale

project permitting,

including simple

notification

X

Pre-identified

geographical areas for

renewable energy projects

or other measures to

integrate renewable

energy in spatial and

environmental planning

X

It is indeed necessary to ease and facilitate the renewable energy development however

most of these measures should be taken and applied at the national level. However, EU

guidelines could provide guidance to help pre-identify geographical areas that would be the

most suitable for renewable energy development.

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23. Please identify precise challenges with regard to grid regulation and infrastructure

barriers in EU Member States that you are aware of.

Supporting innovation: The role of the DSOs is evolving from “fit and forget”, to “connect &

manage”. To prepare for that, DSOs have invested around 70 million euros per year in the

development of smart grids (according to the JRC) and taken part in more than 150 projects

over the last ten years. Technical challenges still exist, but are progressively lifted. One key

result of this effort is the massive roll-out of smart meters currently happening in Europe.

Further use of DER for improving network management, integration of storage and flexible

consumers are the next steps.

Still, regulators have only recently started to consider that DSOs actually needed to innovate.

New support mechanisms, such as the Low carbon network fund in the UK or the dozens of

projects selected by the Italian regulator to speed up the development of smart grids should

become common practice across Europe. Some support for innovation in tariffs (as TSOs

have) would also help DSOs to turn traditional grids into smart grids.

Incentivising investments in smart grids: the investment needed to renew and upgrade the

grid are huge, but DSOs are mainly incentivised to invest in traditional assets (cables,

transformers…) which require a lot of CAPEX and not in smarter solutions (sensors,

automation devices…), which have a lower CAPEX but a slightly higher OPEX. They should

also be able to contract flexibility services.

Redesigning tariffs for a decentralised energy future. In most EU Member States today, the

costs incurred by DSOs are driven by the scale of the network required to cope with supply

or demand surge, and by the maintenance of such a network. The revenues of DSOs,

however, are most commonly based on the volume of energy (kWh) flowing through the

network and delivered to final consumers. When volumetric tariffs are combined with net

metering, consumers are strongly incentivised to invest in their own PV system, but revenue

uncertainty rises for DSOs. Network costs which are no longer paid by the prosumers are

transferred to the bill of “regular” consumers. This should be avoided, and network tariffs

should designed to ensure that every user of the network contribute his fair share of the

distribution network costs.Uncertainty regarding DSO costs and revenues could be avoided

by switching to more capacity-based tariffs.

But cost is not the only challenge: Distribution System Operators (DSOs) can support

markets and help all players to use flexible resources. Already today, DSOs are neutral

market facilitators who collect, store and manage metering data and facilitate the switching

process. The draft network code on electricity balancing also task them to pre-qualify any

service providers connected to their grids. It means that DSOs can be trusted partners who

monitor and validate the delivery of flexibility services.

Last but not least, DSOs should be able to interact with consumers and offer them “smart

contracts” rewarding them for their flexibility, i.e. paying them for shifting their consumption

at times when the grid is less stressed.

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25. Please rate the importance of stronger EU rules in the following areas to remove

barriers relating to renewable energy training and certification:

Very

important

Important Not very

important

Not

important

No opinion

Incentives for installers

to participate in

certification/qualification

schemes

x

Increased control and

quality assurance from

public authorities

x

Mutual recognition of

certificates between

different Member States

x

26. How can public acceptance towards renewable energy projects and related grid

development be improved?

Several projects have already investigated the issue of public acceptance of RES and grid

development projects, notably the EU Grid report released by the Renewable Grid Initiative,

or the Wisepower project managed by EWEA.

All studies stress the need to involve the citizens living next to major RES and grid

development projects. This involvement can take different forms, such as public meetings

and public consultations, but also giving the opportunity to local communities to invest in

RES projects. These actions aiming at involving citizens should also take place as early as

possible to prevent the development of unfounded fears and concerns among the public.

17

EDSO for Smart Grids is a European association

gathering leading electricity distribution system

operators (DSOs), cooperating to bring smart grids

from vision to reality.

www.edsoforsmartgrids.eu