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Enrique Morgades _Energy Transition and Energy Rregulatory Sandboxes_Funseam Seminar032022

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Enrique Morgades _Energy Transition and Energy Rregulatory Sandboxes_Funseam Seminar032022

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This workshop will focus on how this new tool supports innovation in the energy transition and on analysing the innovative experimentation tools available and their application in Europe. A round table with regulatory authorities, companies, and research centres will provide leads on the relevance of Energy Regulatory Sandboxes to facilitate the market launch of innovations helpful to move towards a decarbonized economy. This Workshop runs as part of the European cooperation TR@NSNET project.

This workshop will focus on how this new tool supports innovation in the energy transition and on analysing the innovative experimentation tools available and their application in Europe. A round table with regulatory authorities, companies, and research centres will provide leads on the relevance of Energy Regulatory Sandboxes to facilitate the market launch of innovations helpful to move towards a decarbonized economy. This Workshop runs as part of the European cooperation TR@NSNET project.

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Enrique Morgades _Energy Transition and Energy Rregulatory Sandboxes_Funseam Seminar032022

  1. 1. Plataforma Española de Redes Eléctricas ENERGY REGULATORY SANDBOXES 10th March 2022 Enrique Morgades FutuRed
  2. 2. 57% 14% 11% 8% 5% 4%1% 2 FutuRed Spanish Technological Platform for Electrical Networks Founded on 2005 Members: 166 (30% of growth on the last 3 years) Organizational structure • Permanent: Steering Group and Secretariat • Temporary: Specific Working Groups. Promote the technological development of the electricity grid as a key element to achieve the objectives of the energy transition, promoting innovation and collaboration between all the agents that make up the Platform. Business Universities Research Centres Associations Public bodies Electricity companies Others
  3. 3. Plataforma Española de Redes Eléctricas - FutuRed 3 Participants Type Members Associations and organizations Distribution network managers Industry Research organizations
  4. 4. Plataforma Española de Redes Eléctricas - FutuRed Flexibility in Distribution Networks Common Regulatory Sandbox Features Analysis of results 4 Work dynamics and progress March 2021 September 2021 May 2020 Preparation of a document on Flexibility in Distribution Networks Including a map of technological capabilities and demonstrators of all the members of the WG
  5. 5. Plataforma Española de Redes Eléctricas - FutuRed 5 Conclusions on flexibility in distribution networks Technical characteristics Economic characteristics 1. Characterization of the problem: congestion, tension control, island operation. 2. Quantification of the need: flexibility needs (in MW, MVA), direction (injection or absorption of energy), time and frequency of the problem. 3. Characteristics of the network involved: voltage level, configuration, meshed or radial exploitation, etc. 4. Scope of location of the need in the network: generalized or very localized need. 5. Technical characteristics of the users connected to the network involved. 6. Predictability: it is predictable (structural problem) or it is difficult to predict. 7. Temporary horizon for contracting flexibility: network planning, network design criteria and real-time operation criteria. 8. Level of coordination between transmission and distribution networks: analyze the degree of coordination required between TSOs and DSOs or between DSOs. 9. Resource response times. Slow or fast response. 10. Degree of network monitoring. It is necessary to monitor the network to have more information on the flexibility needs of the network. 1. Level of standardization of certain parameters of flexibility services. 2. Liquidity. 3. Transaction costs. 4. Barriers to entry and exit. Entry barriers can be given by service attributes or communication requirements, specific systems for making offers, etc. 5. Access and availability of information. Relevant information must be available to all suppliers well in advance 6. Market creation phases and incentive schemes depending on the type of need 7. Effectiveness and efficiency of the flexibility mechanisms, for the specific application and the clients that provide the services.
  6. 6. Plataforma Española de Redes Eléctricas - FutuRed 6 Recommendations of flexibility acquisition mechanisms In those situations where there is a potential impact of the flexibility service on the transmission network In those situations where the potential impact of the flexibility service on the transport network is limited Long-term markets Coordinated common market TSO-DSO Local Market In situations of low liquidity Regulatory recommendations: 1. Implementation in the national regulation of article 32 of the European Directive 2019/944 that allows DSOs to acquire and activate flexibility services and the development of operating procedures to resolve the most frequent technical restrictions in the network. 2. Regulation of the relationships between these new flexibility mechanisms with the existing mechanisms (current markets and operating procedures). In particular, it is necessary to resolve the interaction between new flexibility mechanisms and existing markets. 3. Integration of access and connection criteria and the different flexibility mechanisms. 4. Review of the remuneration framework for DSOs to develop incentives for the adoption of flexibility services and encourage efficient development of the network
  7. 7. Plataforma Española de Redes Eléctricas - FutuRed Flexibility in Distribution Networks Common Regulatory Sandbox Features Analysis of results 7 Work dynamics and progress March 2021 September 2021 May 2020 Design of regulatory Sandbox characteristics, as an application guide with common characteristics to be particularized in each case'
  8. 8. Plataforma Española de Redes Eléctricas - FutuRed 8  The national regulatory framework drives innovation through instruments such as regulatory sandboxes and pilot projects.  Until the transposition of article 32 of the European Directive, in the event that a project requires changes or exceptions in the sectoral legislation in order to be carried out, it will have to be processed as a regulatory test bench in accordance with the provisions of LRD 23/2020 in order to establish the necessary exceptions.  Initiatives that may have an impact on the wholesale electricity market and/or on the management of the system's operation may qualify for recognition as regulatory demonstration projects according to article 24 of Circular 3/2019. Understanding that these projects must also comply with LRD 23/2020, which introduces Law 24/2013, of December 26, on the Electricity Sector, the twenty-third additional provision "Regulatory test Banks" and that they must be covered by a call made by a decree of the Government.  The projects that are limited to the scope of the distribution activity that do not affect the wholesale market or the system operator, do not seem to fit within Circular 3/2019. However, for simplicity, this document takes as a reference the criteria described in it.  It is interpreted that since flexibility is an innovative concept in the electricity distribution sector, in the event that the investments and associated expenses of a certain initiative do not have ordinary remuneration recognition, it may be recognized as a pilot project according to article 16 of the Circular 6/2019. Normative analysis
  9. 9. Plataforma Española de Redes Eléctricas - FutuRed 9 Regulatory Sandbox common features document Formal Sandbox Request o Applications with detailed budget and funding sources. o Possible prequalification (general) or qualification (detailed). o Knowledge of the DNM. Approval - Follow-up plan. - Publication
  10. 10. Plataforma Española de Redes Eléctricas - FutuRed 10 Regulatory Sandbox common features document Sandbox development - Plan monitoring. - Possible additional time. Results & Conclusions - Degree of development - Indicators. - Main regulatory barriers. Final and Regulatory Reports - Opportunities. - Regulatory change proposal. 4. Start of the sandbox 5. Development of sandbox 6. Sandbox completion 7. Results and conclusions 8. Final report 9. Regulatory report
  11. 11. Plataforma Española de Redes Eléctricas - FutuRed • Defer network investments due to natural growth in user demand, through activation of the flexibility market (long- term) • Defer network investments due to natural growth in user demand, through dynamic access rates (long-term) • Solution of structural congestion (N-1) long-term market (y-1) • Solution of a congestion (N) in a specific point of the network (short term) • Short-term (d-1) market congestion solution (N-1) • Avoid network reinforcement due to growth of access requests 11 Use Cases Listed below are potential use cases that can be used as examples to facilitate the development of real sandbox projects. 1. Actors Involved 2. Current Solution 3. Proposed model 4. Efficiency Condition 5. Customer benefit 6. Regulation involved. Barriers. Innovation 7. Risks
  12. 12. Plataforma Española de Redes Eléctricas - FutuRed 12 Use Case Example (1/4) Defer network investments due to natural growth in user demand, by activating the flexibility market Actors Current Solution Proposed Model (1/2) • DNM, MO (Market Operator), FSP (aggregators, users with flexibility capacity as active consumers, generators, prosumers, energy communities, batteries, etc). Occasionally TNM (Transmission Network Manager) • DNM annually presents the annual and multi-year investment plan (3 years) • Investments not financed by 3º become part of the asset base with the right to remuneration (RAB). • The DNM, within the planning process, based on the analysis of the needs for network growth or reinforcement, summons a market, through the MO, in which the FSPs can offer their flexibility capacities to reduce the power peak during a range of hours of the year and for a temporary period • Subsequently, the DNM presents an investment plan in distribution assets that contains the flexibility solution to provide a more technically and economically efficient solution to the need to reinforce the network. 1 2 3
  13. 13. Plataforma Española de Redes Eléctricas - FutuRed 13 Use Case Example (2/4) Defer network investments due to natural growth in user demand, by activating the flexibility market Proposed Model (2/2) • In the flexibility auction, both the contracted and activated power prices are established. Payments are made at the time of contracting (for availability) and each time the FSP activates the flexibility. • The total costs of these services constitute a regulated cost that will be transferred to customers in the corresponding network tolls. • It is necessary to monitor the energy flows of the participation of each FSP in the resolution of the congestion in order to subsequently carry out the economic settlement for the participation of flexibility actors in the resolution of the congestion. • Non-compliance by the FSP with the contracted conditions may lead to penalties that compensate for the effect produced. 3
  14. 14. Plataforma Española de Redes Eléctricas - FutuRed 14 Use Case Example (3/4) Defer network investments due to natural growth in user demand, by activating the flexibility market Condition Efficiency • This solution optimizes the technical-economic solutions of the distribution system, generating efficiencies in the average use of physical facilities. Cost of investment in assets (remuneration for investment and O&M) > OPEX of the proposed model (includes both payments to customers for the flexibility services they provide, as well as the costs of managing the system and the DNM, as well as the incentive to DNMs), the solution is justified • The FSP receives this new incentive linked to its participation (CAPEX of contracting and OPEX of activation). • The system costs are reduced thanks to the cost difference between the traditional solution and the proposed model. This benefit is transferred to customers through tolls. Customer Benefit 4 5
  15. 15. Plataforma Española de Redes Eléctricas - FutuRed 15 Use Case Example (4/4) Defer network investments due to natural growth in user demand, by activating the flexibility market Regulation Barriers Innovation • The current legal and regulatory framework does not allow the DNM to purchase flexibility assets as an alternative to network expansion. • For the development of the Use Case, it is necessary to modify regulations related to: functions assigned to DNMs (Law 24/2013), design and operation, remuneration (Circular 6/2019) and new regulations for the Definition of Flexibility Markets, agents involved, information flows in real time, market information flows. • The main risk presented by the model is for the DNM and the users located in the congested area. • The non-compliance with contractual agreements is a concern, Flexibility Remuneration is not attractive for clients, among others. Riesgos 6 7
  16. 16. Plataforma Española de Redes Eléctricas - FutuRed 16 Conclusions and next steps 01 02 03 It is necessary to separate the application and development of the sandboxes from the sources of financing for their execution Sandbox funding can be provided through a variety of public funding sources, including Recovery and Resilience Fund projects. The regulation for its application, development and evolution could be developed in parallel. Sandboxes are instruments to promote regulatory innovation Sandboxes allow obtaining experiences that serve as a basis for developing new regulations. More definition is needed on the procedure to follow for the development of flexibility sandboxes in distribution networks The FutuRed document presents a proposal on the procedure to follow to carry out these projects. It is essential to clarify whether the flexibility sandboxes in the distribution network are within the scope of Circular 3/2019. 04 05 The Administration must define the competences of the different institutions The themes and institutions responsible for receiving, evaluating and monitoring the projects must be clearly defined. Sandboxes on flexibility in distribution networks are an opportunity to test different contracting schemes There are different proposals on the design of local electricity markets and other alternatives for acquiring flexibility in distribution networks. The sandboxes are an opportunity to evaluate these alternatives that will serve as evidence to implement the European Regulation. 06 There is a high interest from agents to develop Sandbox projects It is important that the administrations prepare themselves to respond to the requests that are going to be presented and establish mechanisms for their evaluation and follow-up. One of the alternatives is to establish an external Committee to support the regulator and the competent authorities.
  17. 17. Plataforma Española de Redes Eléctricas - FutuRed ¡Thank you! Enrique Morgades

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