When adopting new rules for Europe’s electricity market, EU policymakers shouldn’t lose sight of the bigger picture which involves an increasingly integrated energy system with multiple links between electricity, heat and gas, writes Hans Korteweg.
Hans Korteweg is Managing Director of COGEN Europe, the European association representing the simultaneous generation of electricity and heat (cogeneration).
The Electricity Market Design (EMD) proposals, now in the final round of negotiations, aim to provide a ‘rulebook’ defining the rights and responsibilities among different energy players, while making the electricity sector fit for the rising share in variable renewable electricity.
Tackling the complexities of the electricity sector is admittedly a gargantuan task. But negotiators should not lose sight of the bigger picture which involves an increasingly integrated energy system with multiple links between electricity, heat and gas.
This integrated energy system is already taking shape in the Commission’s Long-Term Decarbonisation Strategy. On the path to decarbonisation energy systems will need to become more integrated to allow for more emission reductions, efficiency, renewable energy across and between electricity, heat and gas infrastructures.
Some concrete examples show that the very clear lines between these infrastructures will become increasingly fluid and blurred. One such example is power-to-x: renewable electricity will be increasingly used to produce heat, synthetic gases or hydrogen. Cogeneration can use different energy sources stored and delivered through the gas network to produce efficient heat and electricity. Smart heat can help shifting electricity consumption off peak (via heat pumps plus heat storage) or generate electricity during peak time (via cogeneration and heat storage).
All these options represent opportunities to integrate more renewables, maximise emission reductions and improve overall system efficiency, reducing cost for consumers. What will be needed to make this happen is increased coordination between market actors, with rules that foster overall system efficiency.
As the electricity sector is expected to play a greater role in the decarbonisation of the economy, electricity rules are important to deliver that vision. Yet creating rules just for the electricity in silo, without accounting for the important role of heat and gas infrastructures and markets, risks overlooking all system benefits emerging from an integrated approach to the energy system.
Electricity – heat links
Conventional electricity conversion, transmission and distribution is rather inefficient – more than 50% of energy is lost as heat when any fuels, including renewable fuels, are combusted to make electricity.
For this reason, reducing electricity generation, transmission and distribution losses is key, if we are going to use electricity in end-use sectors like heat and transport.
Shortening the distances that electricity has to travel will reduce grid losses and defer further grid reinforcements. Distributed generation like cogeneration helps reduce strain on the grid, because electricity (and heat) is produced close to the point of consumption at a time when both are needed . Electric heat pumps link heat and electricity in a different way, by using electricity to produce heat when needed or at a later stage, if coupled with storage.
Grid tariffs should therefore be flexible enough to incentivise all these smart systems to optimise their own production or consumption to support the grids in an efficient way, while reducing customer energy costs. Introducing capacity-based tariffs without taking into account the specific impacts on the grid of each type of system will only incentivise more grids to be built without any concern for overall efficiency or cost.
Forgetting about efficient heat generation (e.g. via cogeneration) when it comes to electricity market rules, will lead to higher system costs because more grids and more generation will be needed to deliver that heat from electricity. The “energy efficiency first” principle should therefore be applied across the Electricity Market Design, especially with respect to grid tariffs, adequacy assessments, capacity mechanisms and priority dispatch provisions.
Electricity – gas links
While electric storage is helpful to shift consumption for short periods of time, the gas system can store extensive amounts of energy for a long time and at a lower cost. It therefore provides a solution for the storage of intermittent renewable electricity, while also promising to integrate other types of carbon neutral gases. The further conversion of gas into electricity and heat, at times when they are most needed, would need to be done as efficiently as possible, to ensure that energy losses are reduced to a minimum.
To facilitate these synergies the electricity and gas rules would need to be developed in a coordinated way.
Rules that bring everything together
Taking an overall energy systems approach, looking at electricity, heat, gas together, will allow policymakers, regulators and market actors to identify opportunities for synergies in different areas and through different smart technologies. This will maximise renewable energy, reduce energy waste and deliver decarbonisation at a lower cost.
Looking at electricity in silo is therefore not an option if the objective is to develop future proof rules.
 ene.field project/Imperial College London, 2017. Benefits of Widespread Deployment of Fuel Cell micro-CHP in Securing and Decarbonising the Future European Electricity System
 Imperial College London, NERA & DNV.GL, 2014. Integration of Renewable Energy in Europe.