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Demand flexibility: a key challenge for EU electricity market reform

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The massive development of intermittent renewable energies is set to dramatically increase the need for flexibility in the electricity grid, and market players want increased focus on demand management as a source of grid optimisation.

Read the original French article here.

The war in Ukraine sent EU electricity prices soaring last year, particularly for nuclear and renewable energies, whose cost structure remained unaffected by rising gas prices.

In response, the European Commission proposed reforming the EU electricity market to accelerate the deployment of renewables and proposed measures to make power supply and demand more flexible.

According to EU Energy Commissioner Kadri Simson, the EU’s daily flexibility needs will increase by 133% between 2021 and 2030 and a further 250% between 2030 and 2050 because of the increasing share of intermittent renewable energies injected into the grid, she said in April.

Making demand more flexible

The market’s supply side can be flexible mainly by reserving gas or coal power capacity during peak demand.

However, these resources are expensive to maintain and are insufficient to meet growing demand resulting from the increased use of variable renewables in Europe, such as solar and wind power.

Several market players, therefore, emphasise the potential of demand-side flexibility, including techniques like demand-side shading.

In France, for example, there is a market for load shedding, where energy-intensive industries reduce their production and, thus, electricity consumption to relieve the grid and are paid for doing so.

Energy efficiency is also a solution, especially in the building sector.

In the non-residential sector, “you can optimise demand by up to 30%,” said Gwena?lle Avice-Huet, executive vice president for Europe at Schneider Electric, a European specialist in energy management.

“The potential is even greater than in the residential sector,” she told EURACTIV France, pointing out that 18% of buildings in the EU are non-residential while accounting for a third of energy consumption.

In the residential sector, “the idea is to have control over the loads in the house” – essentially heat pumps and electric cars – thanks to “submetering”, i.e. measuring the consumption of connected objects in a building or house, explains Avice-Huet.

Using electric car batteries

In the case of electric cars, the technologies under development relate to “bidirectional charging”, which allows electricity to be sent back to the grid from the batteries.

Some manufacturers, such as Tesla, are already working on this, according to Michael Villa, executive director of smartEN, an association promoting the deployment of flexibility.

In June, Luxembourg’s energy minister, Claude Turmes, called on the European Commission to make bidirectional charging mandatory.

Unexploited potential

To date, “most of the technologies that make consumers flexible are already on the market,” says Villa. “By 2020, 200 GW of flexible capacity will have been installed in buildings,” he explains.

However, “only 5% has been activated” so far, he told EURACTIV France.

Unlocking this potential will require accessing household energy consumption data, an issue requiring a great deal of transparency and communication with the public, says Avice-Huet.

The overall potential is huge. According to a study published last year by the Norwegian company DNV, European consumers could save up to EUR71 billion a year on their electricity bills if demand-side management technologies were fully exploited.

The electricity made available through better demand management could avoid installing 60 GW of peak generation capacity and save almost EUR30 billion a year in investments that would otherwise be needed to reinforce the electricity distribution grid to cope with the additional load.

Inciting participation

The incentives are, therefore, mainly financial.

As Avice-Huet points out, “demand-side management should be remunerated in the same way, whether you are a large company, an SME or an individual”.

Spain, which holds the EU’s rotating Council presidency until the end of the year, has insisted on developing a viable remuneration system to reform the EU electricity market, with Energy Minister Teresa Ribera, making it one of her top priorities.

“There are things that are still missing” in the current electricity system, she said in Brussels in April, citing the need to “build a business case” for solutions like demand-side management and storage of electricity.

Optimising the grid

In addition, distribution grids must also be reinforced to cope with the additional load created by the rise in electric cars, heat pumps and solar panels installed in consumers’ homes.

In total, those costs are expected to amount to EUR375-425 billion by 2030, according to Eurelectric, the EU power industry association.

“Instead of investing in network reinforcement, we need to ensure that distribution network operators take advantage of the flexibility of connected consumers,” said Villa.

In the Netherlands, decision-makers have created a virtual marketplace for exchanging flexibility. Villa added that similar systems are being developed in Europe, notably Italy.

Finally, on a larger scale, European interconnectivity needs improving.

Like many players in the sector, the EU Commission would like to see supply and demand matched not just on the hour but to the nearest half-hour.

Prioritising flexibility?

In the meantime, however, the priority to reduce price volatility remains the development of decarbonised electricity generation capacity.

In France, in particular, the need for flexibility will become “extremely important after 2035”, according to RTE, the French grid operator.

In France, a large proportion of electricity production (nuclear and hydroelectric) can be controlled and is therefore flexible.

In other countries, such as Germany, where the energy transition is based almost entirely on the development of intermittent renewables, the needs will be more pressing.

[Edited by Fr?d?ric Simon/Alice Taylor]

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