When 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.
NOW, WHAT DOES THIS MEAN FOR THE STRUCTURE OF THE ENERGY SYSTEM?
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.
