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Monica Giulietti Chloé Le Coq Bert Willems Karim Anaya CERRE 2019 | Smart Consumers in the Internet of Energy: Flexibility Markets & Services from Distributed Energy Resources 1/82 The project, within the framework of which this report has been prepared, has received the support and/or input of the following organisations: Enel and Microsoft. As provided for in CERRE's by-laws and in the procedural rules from its “Transparency & Independence Policy”, this report has been prepared in strict academic independence. At all times during the development process, the research’s authors, the Joint Academic Directors and the Director General remain the sole decision-makers concerning all content in the report. The views expressed in this CERRE report are attributable only to the authors in a personal capacity and not to any institution with which they are associated. In addition, they do not necessarily correspond either to those of CERRE, or to any sponsor or to members of CERRE. © Copyright 2019, Centre on Regulation in Europe (CERRE) [email protected] www.cerre.eu CERRE 2019 | Smart Consumers in the Internet of Energy: Flexibility Markets & Services from Distributed Energy Resources 2/84 Table of contents Table of contents .............................................................................................................. 3 Table of Figures ................................................................................................................ 4 Acknowledgements .......................................................................................................... 5 About CERRE .................................................................................................................... 6 About the authors ............................................................................................................ 7 Executive Summary .......................................................................................................... 8 1. Introduction ........................................................................................................... 11 1.1. General trends ...................................................................................................... 12 1.2. Clean Energy Package............................................................................................ 15 2. From conventional to smart consumers ................................................................. 23 2.1. The different consumers......................................................................................... 23 2.2. The key drivers of electricity consumption ................................................................ 24 3. Business models and market participants .............................................................. 28 3.1. Retailing and aggregation ....................................................................................... 29 3.2. Microgrids and trading platforms ............................................................................. 31 3.3. Community energy ................................................................................................ 35 3.4. Case studies of DER market participation ................................................................. 36 3.5. Discussion and lessons learned ............................................................................... 43 4. TSOs and DSOs as buyers ...................................................................................... 47 4.1. Coordination between DSOs and TSOs ..................................................................... 47 4.2. Looking at different proposals for DSO-TSO interactions for DER integration ................. 48 4.3. Discussion and lessons learned ............................................................................... 54 5. Network Regulation ............................................................................................... 58 5.1. Network tariff ....................................................................................................... 58 5.2. Setting the correct incentives for distribution operators ............................................. 62 6. Conclusions and recommendations ........................................................................ 66 Reference List ................................................................................................................ 69 Appendix 1: Key features of case studies and projects ................................................... 79 Appendix 2: Glossary ...................................................................................................... 81 CERRE 2019 | Smart Consumers in the Internet of Energy: Flexibility Markets & Services from Distributed Energy Resources 3/84 Table of Figures Figure 1: Renewable energy source development in the EU ............................................................ 12 Figure 2: Variable renewable energy share in total electricity generation by country .......................... 13 Figure 3: Comparison of solar PV segments ................................................................................. 14 Figure 4: Consumer types based on available technology ............................................................... 23 Figure 5: Current use of blockchain in electricity markets ............................................................... 34 Figure 6: Summary of DSO-TSO coordination/interaction initiatives (Australia, the UK and New York) .. 55 CERRE 2019 | Smart Consumers in the Internet of Energy: Flexibility Markets & Services from Distributed Energy Resources 4/84 Acknowledgements The authors thank Dr Andrew Burlinson (University of East Anglia), Mats Kröger (Stockholm School of Economics) and Juulia Zhou (Tilburg University) for excellent research support. Prof. Michael Pollitt (University of Cambridge and Academic Director, CERRE), and Maximo Miccinilli (Energy Director, CERRE) provided valuable input for the report. We benefited from interactions with participants of the CERRE round table discussions which included representatives of the European Commission, ENEL and Microsoft. CERRE 2019 | Smart Consumers in the Internet of Energy: Flexibility Markets & Services from Distributed Energy Resources 5/84 About CERRE Providing top quality studies and dissemination activities, the Centre on Regulation in Europe (CERRE) promotes robust and consistent regulation in Europe’s network and digital industries. CERRE’s members are regulatory authorities and operators in those industries as well as universities. CERRE’s added value is based on: its original, multidisciplinary and cross-sector approach; the widely acknowledged academic credentials and policy experience of its team and associated staff members; its scientific independence and impartiality; the direct relevance and timeliness of its contributions to the policy and regulatory development process applicable to network industries and the markets for their services. CERRE's activities include contributions to the development of norms, standards and policy recommendations related to the regulation of service providers, to the specification of market rules and to improvements in the management of infrastructure in a changing political, economic, technological and social environment. CERRE’s work also aims at clarifying the respective roles of market operators, governments and regulatory authorities, as well as at strengthening the expertise of the latter, since in many Member States, regulators are part of a relatively recent profession. CERRE 2019 | Smart Consumers in the Internet of Energy: Flexibility Markets & Services from Distributed Energy Resources 6/84 About the authors Monica Giulietti is a CERRE Research Fellow and Professor of Microeconomics at the University of Loughborough’s School of Business and Economics, where she heads the Economics Discipline Group focusing primarily of energy economics and regulation. Previously, she worked at the universities of Warwick, Nottingham, Aston and Exeter. Throughout her career, she has frequently published in international journals and conducted research work for several governmental institutions and organisations. Chloé Le Coq is a CERRE Research Fellow and Professor of Economics at the University Paris 2 Panthéon-Assas and at the Stockholm School of Economics (SITE). Her research interests include industrial organisation and behavioural economics, especially topics related to energy markets, anti-trust policy and social innovation. She has held visiting positions at the University of Purdue, at the University of California Berkeley Energy Institute and at the National Singapore University. Bert Willems is a CERRE Research Fellow and Associate Professor of Economics at the University of Tilburg. He is also a Senior Member of the Tilburg Law and Economics Center (TILEC), research associate at Toulouse School of Economics (TSE) and Vice-Chairman of the Benelux Association for Energy Economics (BAEE). He holds an MSc in Mechanical Engineering and a PhD in Economics from KU Leuven. Karim Anaya is Research Associate in Energy Economics at the University of Cambridge. Her main areas of interest include future regulation of electricity distribution and transmission networks, electricity market reforms, and sustainable and green energy technologies. She has also worked as a consultant for different organisations such as the United Nations and the World Bank. She holds a PhD in Energy Economics and a Master’s