Regulatory and legal frameworks
Smart grids are needed to meet the EU’s targets for improving energy efficiency and integrating renewables into the energy mix.
But stakeholders point to a ‘mismatch’ of regulatory and legal frameworks which they say are obstructing the grids’ much-needed roll-out. Under the principle of ‘subsidiarity’ – or decentralisation to the smallest organising body – the planning and implementation of smart grids must take place under the aegis of national regulatory authorities.
In cold economic climes, not all EU members attach the same priority to investing in cleaner technology. Equally, not all the proposed EU-level regulations are yet in place. Complaints are sometimes murmured that research and policy-making wings of the European Commission sing from different hymn books.
Other regulatory questions have also bedevilled smart grid pilot projects, says Jessica Stromback, the executive director of the Smart Energy Demand Coalition, who has reviewed over 100 such schemes.
“The Commission will fund a wonderful pilot project and then not realise that in the current regulatory environment, what they have just piloted is illegal,” she told EURACTIV. EU-funded projects to introduce dynamic pricing on networks or tariffs jointly created by network operators and retailers fell into this technically illegal bracket, she said.
Who should pay?
Industry, consumers, and the planet all stand to gain from more efficient, environmentally friendly, and – in the long-term– cheaper, technology. The only alternative is to continue upgrading and building more lines alongside existing network routes, a scarcely cheaper option.
Smart grids offer a range of benefits across the board. But who should pay for them?
Industrial associations say that the distribution system operators (DSOs) will bear about 80% of the investment costs and that, because end users will benefit, they should also fund it. The decision to increase the use of renewables and cut carbon dioxide was taken by society, they argue, and so society should foot the bill. Grid infrastructure costs have traditionally been levied on electricity bills, and policymakers have proceeded on this basis.
Smart meters offer one way in which consumers can potentially enjoy cost benefits from more intelligent energy provision. Smart devices allow consumers to stagger their energy use to avoid peak times and so lower both their electricity bills and stress on the grid. According to a communication from the European Commission in April, EU households using smart meters had reduced their energy consumption by 10%.
But despite the EU’s third wave of energy liberalisation directives in 2009, which intended to deliver the meters to 80% of European homes by 2020, only 10% of households had one. Enthusiasts have focused on proposing amendments to Article 12 of the proposed directive, and pushing for end users to be given more complete consumption information about the smart meters they are allocated, to prevent the benefits only being enjoyed by big energy utilities.
Bridging the ‘investment gap’
Proposals to fund a Trans-European Network (TEN-E) for energy to the tune of €155 million over seven years are facing mounting opposition at EU member state level. The identified needs of €70 billion of investment in gas infrastructure, and €140 billion for electricity represent a massive outlay. So far there appears to be a significant shortfall between the EU’s lofty aspirations and a somewhat more mundane reality.
Smart grids are not a ‘sexy’ issue and, having only just completed a market liberalisation recently, the industry lacks visibility to attract fickle investors. The stable but long-term and regulated returns on offer are of most interest to pension fund investors, who are prepared to take a long-term view.
In the short-term though, this funding shortfall could affect the ‘balancing’ of grid capacity, which requires clear and predictable frameworks, especially given the urgent need for grid development, after decisions by several EU member states to phase out nuclear energy from their domestic power grids.
The electricity transmission industry wants to see affected parties paying for grid improvements, along with an aggregation of demand and supply, and more demand-side programmes. In the first instance, they would like network investment to be bridged by regulatory approaches.
Renewables advocates agree - to the extent that they identify the short-term returns demanded by investors as having shaped the currently under-capitalised smart grid landscape. But they also want a more regional approach that takes into account socio-economic benefits.
At present, many grid industry insiders question whether the European Commission is on track to meet its 2020 smart meters, energy efficiency, or CO2 reduction goals. Common concerns include creating regulatory certainty, consistent policy-making towards renewables – particularly where feed-in tariffs are concerned – and bringing forward moves to integrate consumers into the smart grid enterprise, through measures such as information campaigns.
Are new regulations needed in 2012?
The April 2011 communication from the European Commission proposed “stricter regulation for the implementation of smart grids” by 2012, if member states were still making what it called “insufficient progress” to implement the roll-out of smart metering systems – because of the close relationship between smart grids and meters.
But industry sources do not expect much movement on smart meters in 2012, as the EU has become bogged down with the issue of common network codes. The communication also signalled that Brussels might intervene to define a common network code if more progress was not made in 2011. But with time running out for legislation to be drafted, negotiated, passed and implemented, expectations for 2020 are not high, even if support for new regulations remains.
The Commission also has the option of giving more help to member states in the form of specifications, functions, cost-efficiency calculations, overheads for research and development pilot projects, and even definitions of what constitutes a smart meter. Europe has a wide variety of smart meters, and there is a lack of common defining criteria for the devices. Some Brussels officials have nicknamed them “Mickey Mouse Meters” to indicate that their functions are highly specific and simply defined.
Too much ‘national thinking’
A feeling remains that EU countries are putting their own perceived national interest first when it comes to the very real need for cross-border grid development, and that the European region is suffering as a result.
Gunnar Lorenz, the head of Eurelectric’s Networks Unit, told EURACTIV that “it is indeed frustrating sometimes to have high-flying European ideas and targets when among the national member states, the enthusiasm is not really there anymore.”
The third energy package for the first time introduced binding European regulations to grid and electricity market management at least. But the slow progress on network codes has hampered its development. In October 2011’s energy infrastructure package, Brussels proposed to refurbish the TEN-E instrument by 2014. This is now being discussed in the co-decision making process.
In the meantime, smart grid development is largely proceeding according to “27 different rule books in one market,” said Jessica Stromback, the executive director of the Smart Energy Demand Coalition. “It leads to small markets, bad cost benefits, lack of investment security - or no investment security - and therefore no investment in the worst case scenario because you don’t get economies of scale the same way,” she told EURACTIV.
Integrating variable energies
One of the key challenges for integrating variable – or renewable – technologies into the transmission grid is the question of storage.
For example, when the sun is shining at midday, enough energy may be generated to meet all domestic demand in a particular country – and for some of the surplus power to be exported. But by evening when the sun is less powerful and people are returning home from work, there will be an electricity shortfall.
In the run-in to 2050, this could be met by a ‘baseload’ of supply from a low-carbon technology such as natural gas fitted with Carbon Capture and Storage (CCS) technology, or an equivalent.
Storing energy generated by renewables like wind and solar is still a costly business, and most technological developments are currently taking place in the field of electric battery storage, which are not immediately applicable. There is more scope for energy gains in predictability, an area where advances in weather forecasting make it easier to take best advantage of high winds, heatwaves and strong tides. Smart meters here could again help by creating economies of scale, consumer power generation (see Prosumers below) and targeted energy usage.
The renewable energy industries point to grid capacity as the most pressing need, so as to integrate the new investment cycle in some renewables that is currently underway. Factors including the EU’s 2020 targets, the EU internal market and security of supply concerns have all contributed to the expanding renewables market.
Off the record though, some grid industry insiders express fears that increased uptake of solar energy could cause problems down the line. “They want to increase solar panels and we want to keep the lights on,” one told EURACTIV, “but if the lights go out because PV has not maintained the power quality, it’s not in either of our interests.”
“If we’re connecting things that the system wasn’t designed for, we’re putting stresses on it. Some people think it is a bit conservative for network operators to say that but maybe it’s good to have a bit of conservatism when you’re thinking about a constant electricity supply. There is a bit of a trade-off between security of supply and reliability [and renewables],” he said.
Has the EU legislated enough?
In the last year, the EU has proposed two pieces of legislation aiming to advance the implementation of smart grid:
- The Energy Efficiency Directive called on network operators to facilitate access to electricity grid system for high energy efficiency cogeneration projects and microgeneration units. It also instructed national energy regulatory authorities to create incentives for efficiency improvements.
- The Energy Infrastructure package pledged €9.1 billion from the EU’s 2014-2020 budget to help upgrade Europe’s grid systems, in the form of project bonds, grants, loans, and loan guarantees. The package broke new ground by explicitly linking the introduction of smart grids and meters with Europe’s ability to meet the 20% energy savings target by 2020.
But many in the electricity industry see the package as too focused on the ‘wholesale’ issue and so of most relevance to transmission system operators.
Some in the renewables sector criticise a lack of emphasis on grid reinforcements. Others complain that most of the 12 priority cross-border corridor grid transmission projects outlined in the energy infrastructure package for funding are slated for fossil fuel projects. Only one corridor is earmarked solely for renewables, according to Green MEP Claude Turmes.
What happens after 2020?
Energy Commissioner Günther Oettinger has signalled that the European Commission would like to see the European Council and European Parliament bring forward legislation on binding intermediate targets for renewables and CO2 emissions reductions by 2030.
But many environmentalists were disappointed that the EU’s energy roadmap did not itself make any recommendations for targets itself.
Because grid infrastructure needs a long-lead in for investment and planning, investors need certainty about the regulatory environment and planning considerations before committing funds to such projects. Infrastructure committed today might not come online until 2030. Thus many in the grids infrastructure industry wish for more clarity and commitment from the EU on this matter.
ENTSO-E, a body of European transmission system operators, has been tasked with producing the first Pan-European grid vision, a 10-year network development plan incorporating the third energy package. Their eventual proposals may lead to installations in place for as long as 50-60 years.
The ‘prosumer’ cometh
By 2050, smart grid advocates envision a world in which households will be able to produce their own energy with solar panels and windmills in the garden. As well as allowing them to power their own homes with only minimal help from power utilities, this would enable them to sell surplus electricity that they haven’t used to other households.
This way, households would not only be consumers of energy but producers too. Industrial associations hypothesise that if network tariffs and supply contracts were changed, discounts could be offered by utilities to, for example, consumers who charged their electric cars overnight, away from peak hours.
Even so, this vision could take time to materialise at the current rate of change. Electricity prices, market regulation and large energy companies would all have to be overhauled first. But some industry groups are optimistic that if consumers were allowed into the energy markets, and “dynamic tariffs” were introduced, the picture could improve faster than many imagine.