Report delves into opportunities and challenges of “internet of energy”

Active consumers with access to distributed energy resources (DERs) are set to play a key part in the transition to a low carbon energy system, the Centre on Regulation in Europe (CERRE) has said.

On 19 November, it launched its report, Smart consumers in the internet of energy (IOE): Flexibility markets and services from distributed energy resources. The report explored the opportunities and challenges arising from the IOE, with local consumers, producers and system operators (TSOs and DSOs) trade increasing amounts of DERs. The report said that understanding the necessary conditions for the development of local energy markets with the active participation of DERs is essential.

With a majority of techno-economic models forecasting electricity markets more reliant on decentralised generation, demand response and localised system management, a smarter and more flexible system is required to meet these new commercial and regulatory challenges.

The report explored a series of recommendations with regards to the best way to enabling this, including that tariffs should be more directly linked to costs. The current network tariff regime, it explained, is not optimal for a smart energy system. One way of doing this, without being dependent on smart meters, is to increase the capacity tariff (£/kWh) while reducing the volume tariff (£/kWh). This would mean that marginal costs are more closely determined by capacity needs rather than energy volume. Furthermore, by abolishing net-metering and moving towards capacity tariffs, cross-subsidisation from poor consumers to richer ones could be reduced, improving the overall fairness of the tariff structure.

It also set out that the larger role of DSO in the future energy system will mean more comprehensive regulation is required. It suggested that incentive regulation, where the regulator steers on outcomes and leaves flexibility to the DSO, may be more preferable to command and control regulation. It also noted DSOs play a key part in supporting innovation by market participants, meaning transparency and long-term predictability on the rewards for local ancillary services, as well as accommodating market access by different market actors, will be important.

Chloé Le Coq, one of the report’s authors, said: “Smart consumers are highly dependent on the ecosystem they are operating in. We can learn from international experiences that Europe needs to develop innovative regulatory models and be ready to test new institutional schemes that involve consumers to support the energy transition. The work ahead goes beyond monitoring what the Clean Energy Package can deliver, we have to anticipate new trends and take action to give more clarity to what DSOs and TSOs can do together and avoid new bottlenecks.”