Policy recommendations for the uptake of distributed flexibility

Policy recommendations for the uptake of distributed flexibility

The FlexSys project identified 3 types of barriers that impede the uptake of residential flexibility – technological, regulatory and economic barriers – and provide recommendations on how these barriers can be overcome. In this blog article we list them up briefly. The in depth analysis behind this research is available in this document.

The technological barriers encountered range from technical compliance to the ownership of data. For small assets for example, it seems to be a big challenge to meet the numerous technological requirements (real time data communication, prequalification procedures). We therefore recommend an increase in scalability and a simplification of data communication requirements. Next, we highly encourage the government to optimally inform the end-customer about the possible advantages of the digital meter for a household – however the end-customer first needs to activate the correct regime (SMR3) to enable energy sharing, peer-to-peer sales, dynamic price contracts and asset steering. In addition, the market for measuring and metering activities should be more open and protocols to connect to the digital meter should be standardized. To conclude on the technological barriers, attention goes to the current situation where the end consumer or owner of flexible assets do not have ownership of their data but the manufacturer of their assets (batteries, electrical vehicles, …) has. This is not in line with European directives that state that these data should be made available to the consumer without any costs. Moreover, it is advised to make relevant, non-private data publicly available to increase market and data transparency.

In the category of regulatory barriers, recommendations vary from more clarity on the framework for the transfer of energy on the low voltage grid to guarding free market competition.

A first barrier is the absence of a specific framework for the transfer of energy on the low voltage grid. The recommendation to the government therefore implies in developing one and to incorporate at the same time more clarity on tariff structures and responsibilities of all parties involved. A second barrier describes the position of certain grid operating parties that gained throughout the years too much decision power. A solution here lies in a more close follow up by the Flemish government, participation in relevant working groups and the organization of more cross-sectoral consultations from both the electricity and gas sector to support democratic decision making. Thirdly, looking at free market competition, guarding of official roles in the energy system and its corresponding mandates, rights and responsibilities seems vital to maintain the separation between the natural monopoly of grid operators and the market based activities. For example, there is no clear reason why submetering should be a regulated activity carried out by the grid operators, nor should behind the meter services be. Energy companies big and small already provide solutions for submetering, however it is stipulated as a regulated activity that needs to be carried out by grid operators.

The third type of barriers – economic barriers – handles which improvements that could be implemented in the current tariff structure for households in the retail market. The dynamic tariffs for instance, following the day ahead prices on the electricity market, are needed to create the price signals for flexibility valorization. However, only the largest suppliers are obliged to offer this type of contract, limiting many households in their choice. In addition, many households would not trust dynamic pricing, on the one hand because of the current energy crisis and the fear to be exposed to high price volatility, on the other hand because of miscommunication and lack of showcasing the advantages in marketing campaigns. It is therefore advised to the federal and Flemish regulators to consider the implementation of secondary EAN’s on which a second energy contract can be closed. This could help to increase the popularity of dynamic tariffs because households could spread risks and assign dynamic tariffs to the flexible assets. Secondly, emerging congestion problems are to be avoided in the future. The capacity tariff is one way to deal with these problems. Yet, flexibility provision can lead to injection or offtake peaks, which could be punished in the system of capacity tariffs. Especially owners of heat pumps and electric vehicles, technologies which are perceived to support and accelerate the energy transition, will be confronted with higher costs. This can be countered by making the grid costs more cost reflective as to moments in which congestion might occur. A potential way for federal and Flemish governments of doing so is the introduction of dynamic grid tariffs for offtake as well as injection. Thirdly, when preserving stability of the grid’s frequency by responding automatically, offsetting frequency deviations and stabilizing frequency at a stationary value (Frequency Containment Reserves) with home batteries or electrical vehicles, there are double grid tariffs and levies, i.e. on both offtake and injection, which could jeopardize the business case. This should be evaluated in the tariff structure design. As a last economic barrier, we draw attention to the challenge of fast and costless aggregator/flexibility service provider switches. Currently, contract cancellations by the client need to be processed within 3 weeks after request and after 1/1/2026 even within 24 hours. Moreover, it is not allowed to charge any costs for early contract cancellation. Although such regulation is likely to support competition and increase consumer interests in these services, it also makes it challenging to create a viable business case for explicit residential flexibility, especially because explicit flexibility requires the installation of specific hardware that enables asset steering. This hardware is costly to install and sometimes customized to communicate with specific asset types and brands. As such, it doesn’t allow for frequent contract changes. When designing the new retail market for flexibility, this challenge certainly should be taken into account as well.

With the support of the federal Energy Transition Fund.

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