EU negotiators agree ‘dynamic pricing’ of electricity

With rising shares of intermittent renewables, electricity "aggregators" are considered essential to provide demand management services, which provide flexibility to the power system. [Ralf Steinberger / Flickr]

Energy companies with more than 200,000 clients will be obliged to provide households with at least one offer comprising dynamic price contracts, under an EU-level agreement reached behind closed doors last week, EURACTIV.com has learned.

European Union legislators made headway on a proposed overhaul of EU electricity market rules, striking an agreement on “aggregators” – or virtual power plants, which make money from storing electricity or managing the energy consumption of their clients.

The deal on dynamic prices makes way for aggregators to enter the electricity market en masse and disrupt the sector in the same way that virtual network operators disrupted the telecoms market.

Under the agreement, aggregators won’t have to ask energy suppliers for prior permission to enter the market. In exchange, energy suppliers will receive compensation in case the electricity they produce is lost. Details of the compensation are still to be agreed.

Florent Marcellesi, a Spanish lawmaker, represented the Greens in the European Parliament delegation during three-way talks with EU member states and the European Commission which took place behind closed doors last Thursday (18 October).

“I am glad that we removed the possibility for member states to impose prior consent of the supplier before letting an aggregator enter the market,” Marcellesi told EURACTIV in e-mailed comments.

This is “very important” because the supplier is often a competitor and has every incentive to bloc aggregators from entering the market, explained Frauke Thies, from Smart Energy Europe, a business association.

Aggregators make money from pooling the electricity consumption of households and selling off their unused power during peak hours, when demand is high. With rising shares of intermittent renewables, they are considered essential to provide demand management services, which provide flexibility to the power system.

“In a system with more and more variable renewable electricity injected into the grid, demand-response is more necessary than ever,” Marcellesi said. “Reaching a critical mass of demand-response can only be achieved via the development of aggregation,” he told EURACTIV.

The agreement on aggregators and dynamic pricing was “a big concession” from EU member states, said Manon Dufour, the head of Brussels office at E3G, an environmental think tank.

“Any supplier with 200,000 clients must have at least one offer with dynamic price contracts,” Dufour explained. This means energy providers that propose fixed electricity prices to households, such as EDF in France, will now also be obliged to propose dynamic price contracts.

She said the clause will “guarantee enough competition on this type of contract to attract consumers” and unlock demand-side management services in the energy sector.

Energy execs: ‘The market for demand-response is only going to grow’

Demand-response services are still fairly new in the electricity market, but their importance is only expected to grow as power grids come under increasing strain from intermittent renewable energy sources. Andreas Flamm and Frauke Thies explain the “fundamental shift” that needs to happen in the policy landscape.

Regional cooperation centres by 2023

EU negotiators also agreed to establish regional cooperation centres by 2023, as a way to facilitate cross-border exchanges of electricity and ensure unused excess power does not go to waste.

Regional centres will take a more prominent role in balancing markets, which will allow cross-border balancing of electricity flows and bring benefits in terms of market integration. According to estimates by the Regulatory Assistance Project (RAP), this could unlock up to €3 billion savings annually by 2030.

“Regional cooperation and demand-response are basically two zero-carbon sources of flexibility that we need to decarbonise. So it’s going to unlock more flexibility,” Dufour said.

The move does not represent full harmonisation of wholesale markets, Dufour cautioned, however, saying regionalisation has different aspects such as resource adequacy, balancing markets and wholesale markets. “It’s the smallest of the three but it still represents significant savings,” she said.

EU power industry association Eurelectric hailed the establishment of regional cooperation centres (RCC) but said it didn’t go far enough. “We maintain that if we are serious about effective coordination at regional level, any derogation, from any type of RCC instruction should be justified,” it said in a statement.

Still, Eurelectric welcomed the recognition that RCCs will have balancing as part of their tasks. “This is critical to enhance cross-border exchanges and optimise balancing capacities at regional level,” it said.

Compensation

Despite progress made, crucial details remain to be clarified, Marcellesi warned. This includes the thorny issue of how much compensation power companies should receive for the electricity they provided and delivered but didn’t get paid for.

Indeed, the draft agreement does not stipulate who should pay compensation to energy suppliers for the unused electricity they were contracted to produce – whether aggregators, transmission system operators (TSOs) or others.

“We need to make sure that the barriers we remove do not come back through the backdoor via other provisions such as compensation payment. The agreed text is not fully satisfactory in this respect,” said the Spanish lawmaker.

Eurelectric said aggregators can contribute to a more flexible power system and are therefore “welcome”.

“However, we regret that the final deal does not seem to request from independent aggregators that they pay suppliers for the energy fed into the system as a result of a demand response action. This as such is a clear breach of property rights and a missed opportunity to ensure a true level playing field,” Eurelectric said in a statement.

EU push for electricity 'aggregators' risks distorting market, warns study

Draft EU energy legislation aims to make the bloc’s power system more flexible and give consumers more control. But a new study insists that the European Commission’s proposal to create electricity “aggregators” goes too far, and risks distorting the market.

Talks stall on capacity mechanisms

And while negotiators made headway on market reforms, they failed to make progress on state aid for backup power plants, which critics accuse of distorting the market and hampering renewables by keeping coal and gas-fired power stations in the energy system longer than necessary.

“From the European Parliament, the main question is: should we continue to subsidise coal in Europe? Our position is clear: no,” said Marcellesi. “The European Council position supporting coal is not sustainable at all and shall take into account the last report of the IPCC. Subsidies to dirty energy must stop now. Let’s better focus on how to achieve a just transition in the coal regions.”

Decisions on whether to fund backup schemes are informed by an “adequacy assessment” to evaluate whether there is enough supply to meet demand at all times, including during peak hours.

Those “need to be realised at EU and regional rather than at national level, in order to ensure common assessment rules and avoid unnecessary spread of capacity mechanisms, as these distort the market to the detriment of the deployment of renewables,” said Joanna Flisowska, coal policy coordinator at Climate Action Network (CAN) Europe.

Those calls are echoed by Eurelectric, which describes enhanced regional cooperation as “a must”.

“We hope that the legislation will soon require TSOs to justify any derogations” from the instructions provided by Regional Coordination Centres (RCCs).

“In this respect, we believe that the RCC should be given the task to coordinate balancing capacity sizing and procurement as this is critical to enhance cross-border exchanges and optimise balancing capacities at regional level.  This element was regrettably lacking” in the proposals put forward by the European Parliament and Commission “and needs addressing,” Eurelectric said in a statement.

Capacity mechanisms reform – key issues to watch

The European Commission wants to limit state aid for power plants that EU countries remunerate to remain on stand-by in case of demand peak. As negotiations on the EU’s new electricity market enter the home straight, EURACTIV lists the main issues to watch out for in the debate.

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