18 January 2018
Breaking the silos: An integrated approach to smart energy

By Frauke Thies, Executive Director, smartEn – the European association for smart energy solutions, (pictured)
Winter 2017

Frauke Thies, Executive Director, smartEn – the European association for smart energy solutionsWhen Europe established its 2020 objectives for the energy transition ten years ago, much of the debate was focussed on the shift of energy resources, away from polluting fossil fuels towards cleaner renewable alternatives.

Only few would have expected the entire sector, and its prevalent business models, to change so fast with it. In fact, when the Smart Energy Demand Coalition, SEDC, set out to establish the demand-side as an interactive part of the energy value chain, the system was characterised by centralised supplies, delivered uni-directionally to largely passive consumers. Electricity, heating and transport were separate sectors with very little interaction. Today, it is commonly accepted that the new energy world is different.

On the technology side, we see decentralised generation go along not only with the rapid evolution of storage technologies, but also the automation of devices, allowing for demand response and technology interaction at various levels. The integration and increasing electrification of transport and heating, so called 'sector coupling', is advancing. Automotive manufacturers are cooperating or even integrating with heating and solar companies to promote interactive solutions. Smart appliances and building automation optimise consumers' energy use, offering both comfort and the ability to adjust to signals from the grid.

Services have moved beyond simple supply. Digitally-enabled business models have emerged from the need for facilitation, aggregation and market-placement of energy and services from distributed resources. For example, companies specialise in the identification of flexibility resources in large production sites, helping consumers make use of their potentials. Others provide residential energy users with solutions to optimise their local power production or the use of their heat pump. Many of the service providers themselves make use of digital service platforms enabling their business.

Coupled with this, the roles of the different actors can no longer be classified as they were. While network operation remains a contained role, the distinction between generators, suppliers and consumers has given way to new concepts and combinations. Consumers are becoming generators, asset owners may be individuals, communities or pension funds, and new service providers have entered the market. We are seeing traditional energy companies with previous portfolios of coal or gas generation, selling off their assets and investing in the management of decentralised solutions and services. New market entrants like independent aggregators are establishing themselves as important players, and traditional manufacturing, telecommunications and IT companies are entering the energy space.

With the changing realities of the energy system, regulation must also adapt. Decentralised solutions are a central part of the Clean Energy Package currently under negotiation in Brussels. An updated market design that enables the efficient uptake of demand response, storage and distributed generation is on the table, including proposals to open the markets for innovative products and service providers. For example, consumers should have the right to choose dynamic pricing offers or engage in self-generation, buildings should become smarter and be certified as such, aggregators should be given non-discriminatory conditions to provide their services to consumers, and distribution system operators are encouraged to source efficient flexibility services from the market.

Is the top-down approach to the energy system now giving way to a bottom-up approach? Some current trends suggest so. Driven by existing market rules and incentive structures that are heavily determined by the blunting effects of rigid taxes, levies and charges, many prosumers using the new opportunities of selfgeneration and on-site flexibilities, choose to go off-grid or minimise interaction with the system, rather than participating proactively. But make no mistake! Decentralisation does not require fragmentation and autonomisation. A sustainable, decentralised energy system will build on an integrated perspective: Consumers, prosumers and asset owners should be able to use and sell their energy and flexibility resources wherever they are most valuable at any moment. This means moving beyond silos of demand or supply, locallevel or system-level optimisation of resources. In such integrated markets, distributed energy and flexibility supplies and services could be used at every level and purchased by all different actors – Distribution System Operators, Transmission System Operators, and all market participants. For this to succeed, markets and products must be streamlined between the local and regional level, between the provision of services for system operation and energy for supplies.

The creation of a smart integrated system also means that taxes, levies and grid-charges must be revisited, encouraging smart interaction rather than pushing users away from the system. If, in many European countries, over two-thirds of a consumer’s energy bill consists of flat taxes, levies and charges that are based on the kilowatthours consumed, grid defection is a natural reaction. Different options should be explored to overcome this effect. Levies could be linked to the point of fuel consumption, rather than final electricity; dynamic taxes linked with the electricity market price should be assessed; VAT, which has been linked with the volumes of electricity, could instead be based on purchasing price. Finally, if users can earn back part of their network charges or benefit by selling services to the system, monetising their energy and flexibility, they will tend to remain connected, contributing to a sustainable, costeffective and increasingly decentralised energy system.

In this context, digital solutions will not only support the provision of services to the system, but they are essential also for the operation of markets and platforms. The market integration and evolution of new and innovative products on the power exchanges and the trialling of new approaches to service acquisition by Transmission and Distribution System Operators gives reason to be optimistic for the next steps.

In an increasingly decentralised, decarbonised energy system, we need the digitally enabled interaction of millions of demand and supply assets and solutions. This requires an integrated perspective - and this why the Smart Energy Demand Coalition, SEDC has become Smart Energy Europe, smartEn.