The new European Directive (EU) 2019/944 [1] establishes common rules for the internal market in electricity and amends the previous regulation based on Directive 2012/27/EU [2]. The document does not go into details of implementation (which in many cases are not set out in the directive itself and are left open to the different national governments of the member states) and focuses on the general guidelines. It aims to be a very concise summary structured around 4 main axes; 1) The change of energy model. 2) The strengthening of the role of active consumers as the main source of flexibility 3) The implementation of energy communities 4) The change in the development, planning and management of distribution networks.
The need of a new energy model
With regard to the new energy model, the regulation recognizes the need for change and propose to encourage it by providing long-term regulatory stability that promotes investment in this new model. On the one hand, the growing process of electrification will undoubtedly lead to an increase in the demand for electrical energy, and on the other hand, the objectives in terms of reducing global energy consumption and decarbonizing the European Union are very clear. Therefore, if we want to reduce the global energy consumed in a context of growing demand for electrical energy, we have no choice but to introduce radical changes in the system that will allow us to exploit the installed resources to the limit, increasing efficiency and reducing costs. Both distributed generation and climate control systems based on heat pumps, electric vehicles with conventional or bi-directional charging systems for the application of V2G, electric energy storage systems, etc., will increase the overall load on the electricity system in terms of energy volume, but will also provide flexibility to the system as this type of generation/load is flexible, i.e. it can be regulated relatively easily without provoking a loss of comfort for the end-users. The management of the flexibility of new loads/generators installed in the distribution network is identified as a critical element in achieving these objectives.
Empowerment of Active Consumers: Managing their Flexibility in an Aggregated Way
The European Union recognizes the need to put active consumers who can participate in demand response programmes at the center of the solution. The EU defines the term demand response as “the change of electricity load by final customers from their normal or current consumption patterns in response to market signals, including in response to time-variable electricity prices or incentive payments, or in response to the acceptance of the final customer’s bid to sell demand reduction or increase at a price in an organized market whether alone or through aggregation”. In this definition, the European Union deals with two concepts of demand response, on the one hand what is known as implicit demand response in which customers adapt their consumption manually or automatically to price or incentive signals that vary over time. On the other hand, explicit demand response allows a third party, generally an aggregation entity, to execute actions on the flexible devices of a final consumer.
It will be imposed by regulation that all customer groups, whether commercial, industrial or domestic, must have access to electricity markets in order to commercialize their flexibility and in this respect, the importance of the role of the aggregator in managing the flexibility of these customers is recognized. In addition, customers will be able to contract the management of their flexibility with an aggregator which can obviously be independent of their distributor, but also of the retailer with whom the customer has established the supply contract.
The regulation also guarantees the integration of electric vehicle recharging systems but goes even further. It recognizes existing legal and commercial barriers in the form of excessive taxes and administrative burdens and plans to remove them. It will therefore encourage the use of self-generated energy, its use in storage systems and its injection into the grid. Explicit mention is made to the need of promoting all types of electric mobility solutions, intelligent recharging systems, V1G and V2G technologies. Moreover, the directive recognizes that the lack of real-time or quasi-real-time information at consumer level and that this is absolutely necessary to carry out this type of implementation and is an unresolved issue in the current system. It will therefore be necessary to promote the deployment of intelligent metering systems that allow consumers to participate in all demand response programmes (implicit or explicit).
A New Actor in the Stage: Energy Communities
With regard to the implementation of the new role of “energy community” or “energy citizen community”, the EU defines this new actor of the system as a legal entity that:
- is based on voluntary and open participation, and whose effective control is exercised by partners or members who are natural persons, local authorities, including municipalities, or small enterprises,
- whose main objective is to provide environmental, economic or social benefits to its members or partners or to the locality in which it operates, rather than generating a financial return; and
- participates in the generation, including from renewable sources, distribution, supply, consumption, aggregation, storage of energy, provision of energy efficiency services or, provision of electric vehicle charging services or other energy services to its members or partners.
Energy communities constitute another mechanism through which their members or partners can participate in the electricity markets since in this case they would be represented by the community itself. The implementation of this type of community not only brings an increase in energy efficiency and an environmental benefit but also allows certain consumers to participate in the benefits of the different electricity markets. Furthermore, energy communities are seen as a mechanism to fight energy poverty, which means that in addition to the technical and economic benefits of demand-side management described above, there are also social benefits in this new actor.
It should also be taken into account that regulations allow these types of energy communities to set up their own distribution networks and also to become electricity distributors with full rights and duties. Once again, and as mentioned in the previous point, having overcome the regulatory barriers, a change of mentality must be promoted in society and in addition the advanced metering infrastructure installed within the community itself must allow its operators to manage the community’s assets in real-time or quasi-real time.
Adapting the Distribution Grid to this Challenging Scenario
With regard to the management of the distribution network, the new directive continues to impose a clear model for the segregation of activities, and to promote the modernization and the increase of observability of the networks by the operators as the main line of action to promote the penetration of distributed resources and manage their flexibility.
It should be borne in mind that the figure of the distributor is mainly remunerated from the income received from the payment of the access tariff by the agents using its infrastructure. Moreover, the states reward the distributors with a percentage of the investments they make to maintain their networks in optimal conditions. The new regulation imposes the reduction of these incentives. This measure will lead to a reduction in the incomes that distribution companies receive for maintaining and upgrading their networks in a context in which the energy managed within them will undoubtedly increase.
With this regulatory framework, the only way to profitably and massively integrate the different distributed resources without creating continuous congestion problems in the distribution network is to manage them in an optimal and coordinated manner. In this sense, the different states will implement network codes applicable to the distribution networks so that they have tools that allow them to carry out congestion management in real time.
The European Union’s position on storage systems is curious, as it explicitly states that distribution network operators must not own, develop, manage or operate energy storage facilities, as storage services must be based on market mechanisms and therefore cannot be implemented by agents whose activity is regulated, as is the case with distribution. A distributor can only own a storage system when it is fully integrated in its network and not used for balancing or congestion management. This is very important for the development of business models based for instance in V2G technology.
[1] Council of European Union, “Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU,” 2019.
[2] Council of European Union, “Directive 2012/27/EU of the European Parliament and of the Council of 19 December 1996 of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC,” 2012.
