Regulators

Context

The integration of Distributed Energy Resources (DER) poses a valid challenge to both industry and regulators. The regulatory model behind the Internal Energy Market is based on a strict separation between the generation, transport and distribution of energy, where the tasks, rights and obligations of the latter two are defined by Directives implemented as national laws.
For central generation, economic network regulation may be seen as a side constraint. For decentralised energy resources, however, economic regulation of both DER and the distribution network operators is an integral part of the business model.
However DER is promoted not only by network arguments such as deferred reinforcements, but also by externalities offered to other stakeholders and by national environmental targets.
Finally in terms of regulation, DER can be seen as a competitive [generation] or a regulated [network] activity and the delicate interaction between direct support and network charges will set the pace for their deployment.

Challenges

  • What type of network regulation will create a sound, robust and credible commitment towards DER integration into distribution networks?
  • What are the prerequisites for sustainable and efficient “Use of System” tariffs for distribution?
  • How to establish “Use of System” tariffs that are able to unveil the value of DER as “network replacement”?
  • What is the “hosting capacity” for DER in the present distribution networks?
  • What is the rationale for the upgrade of the design criteria allowing for more flexible DER integration?

Results

DER can be both a complement and a substitute to network services; the regulatory structure must reflect this feature

DER investments that lead to deferred network investments may be promoted adequately by DSOs provided that their regulatory regime is based on total expenditure for a gross load output, not on mark-ups on grid investments. As the substitution is highly location and time dependent, DSO participation is vital for full welfare effects.
DER investments may also be complements, such as remote controlled units performing value-added services on the network. In this case, the optimal regulation acts as an incentive for joint investments from DER investors and networks to maximise impact. In this respect, traditional models using delegation or contingent investments perform poorly, whereas coordinated direct mechanisms give better results in terms of investment level and benefit.

Harmonisation of the DER-DSO regulation interface is important in order to reduce regulatory risks and promote investments

Since DER is both relatively new and “odd” under the EU-type network regulation, regulators have implemented a range of different rules for their interaction with DSOs and the DSOs service conditions. In combination with support schemes of investments which do not provide a fully sustainable regulatory path for the mid and long term, the resulting effect is higher regulatory risk that lowers investment incentives, impedes economies of scale in DER deployment, and increases operating costs for DSOs. By harmonising the DER-DSO regulations to a common set of rules and clarifying what are the drivers for future network investments, penetration can be promoted at lower social costs and higher efficiency.

Prerequisites have been defined for sustainable and efficient “Use of System” tariffs for distribution

Customer bills are generally a combination of different parameters of electricity delivery via kW and kWh components. The supply contract separates components from the energy supplier, the transmission company, and the distribution company, as well as additional components like contribution for the regulation task, for renewable energy, etc.
Getting “efficient” tariffs supposes a clear separation of the UoS tariff from incentives; for sites equipped with DER, load and generation cannot be treated as a single component.

A new “Use of System” tariff methodology proposed to explicit the DER value for network investment deferral

DER located in medium and low voltage networks represents an additional value for the system. A new methodology has been proposed allowing for the unveiling of the footprint of load and generation in distribution networks. In order to be applicable down to low voltage networks, the method requires large scale interval metering systems as well as ex post data management.
Different levels of simplification are possible in terms of metering. Locational non-discriminatory policies may also be integrated to assure equity among connecting clients. Further, UoS tariffs must be made sufficiently stable from one year to the next.

The DER “hosting capacity” of the present distribution networks is significant

Current distribution networks are most often characterised by margins that permit the integration of a significant proportion of DER. This “hosting capacity” that must be calculated based on the design criteria of the distribution network, is dependent on the type of DER. The important issues of system loading and voltage control depend on a series of parameters: the coincidence of consumption and generation, the homogeneity of the HV – MV substation feeders in terms of location of load and generation, the voltage control margin, etc. This leads to two control options: limitation of the risk of flow inversion along a feeder, or the possibility of implementing active management for setting the medium voltage.

A rationale has been proposed to upgrade the design criteria of distribution networks which can flexibly integrate more DER

The impact of an increased number of DER on the cost of the system depends on the types of DER considered and on the network to which they are connected. The additional investment costs due to DER integration depend on energy policy choices, including the associated operational rules that are imposed, and, amongst others, the possibility to control power injection in case of contingencies.
Increasing the “DER hosting capacity” of the network may or may not use active management. It requires the set up of new design criteria for developing and exploiting distribution networks. This is necessary because margins are needed if a reduction of power injection is to be avoided as much as possible.
“Exogenous” objectives, in close connection with the goals of energy policies, are necessary for fixing these targets (limitation of generation power per connection, objectives in terms of penetration for DER, limits set for generation control in normal and abnormal conditions, etc).
New design criteria for distribution networks can be developed as soon as clear policy objectives are defined. These objectives should be defined outside of the electrical supply industry, but with its participation. The definition of the respective toles of design and active management is an integral part of the process.

 

Challenges not covered by EU-DEEP
  • What should the new design criteria for Distribution Networks be like? For illustration purposes, the flexible symmetrical design has been proposed, but updated criteria must only be defined after a large consultation.
  • What should new network tariffs look like? Principles have been proposed, but again large consultation of the different parties is necessary.
  • Should the regulators’ powers be reinforced so as to give them an explicit mandate to deal with DER-related issues?

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Regulators
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