1. Regulation for Smart Grids
EURELECTRIC Paper on
Regulation for Smart Grids
Pierre Schlosser, Advisor for Networks at EURELECTRIC
Belgium – Session 6 – Paper 0292

2. EURELECTRIC represents the EU electricity industry, across the whole electricity value chain
ENERGY POLICY
& GENERATION
MARKETS
ENVIRONMENT
& SUSTAINABLE
DEVELOPMENT
NETWORKS
& DISTRIBUTION
The voice of the European Electricity Industry in Brussels, the heart of Europe

3. In February, EURELECTRIC published its report on Regulation for Smart Grids, which assesses the regulatory framework for Smart Grid investments in Europe

4. In April, EURELECTRIC published its 10 Steps to Smart Grids which outlines the key elements of a 10 year Smart Grids Roadmap

5. Currently, EURELECTRIC DSOs is working on two main policy papers:
The EURELECTRIC response to the European Commission
Communication on Smart Grids – to be published in the second-half of June 2011
The EURELECTRIC report on Smart Grids and Flexible Loads – to be published during summer 2011 +
EURELECTRIC is closely monitoring the discussions on the upcoming Directive on Energy Efficiency

6. Smart Grids: the key regulatory challenges
1. DSOs must be given a chance to invest in a smarter infrastructure
2. A sound retail market design with clear roles and responsibilities for regulated (network operators)
and competitive players (suppliers & ESCOs) must
be established

7. 1.The smart meter roll-out is currently hampered by a lack of mandate clarity and by the limited possibilities to recover associated costs
Source:
EURELECTRIC,
Regulation for Smart
Grids Report 7

8. 1. In most of the surveyed European countries the smart meter penetration level is still relatively low
Source: EURELECTRIC, Regulation for Smart Grids 8

9. Example for illustration
1.The split-incentives problem: Smart Grids will benefit the whole society though most costs will bear on DSOs
Here is an example for an investment in smart grids that delivers overall net benefits
However the investments are only borne by the DSO whereas it only receives part of the benefits lower that are lower than the investments. Without any further incentives it would not be reasonable to invest.
adapting the grid to the new mission means increasing investment risk and benefits for others on DSO expenses
Other stakeholders profit from DSO investments without paying:
Consumers will profit from selling power and new ways to save energy
Suppliers will be able to offer new products
The main reason why benefits of suppliers and customers do not reach the DSO is the functional and information DSO unbundling
Society as a whole benefits from environmental aspects creating positive externalities.
Example for illustration
Source: EURELECTRIC, Regulation for Smart Grids

10. 1. Appropriate regulatory incentives need to be put in place
1. Appropriate regulatory incentives need to be put in place. Only 3 countries offer DSOs strong incentives for investments

11. 1. Recommendations on Regulation for Smart Grids
Grid tariff models should be updated by Member States/NRAs
Stronger focus on long term overall benefits of DSO investments rather than narrow, short term cost optimization
Encourage innovation, RD&D expenditures and the use of new technologies with a new risk-reward balance
Encourage capital expenditure on Smart Grids in the areas where this approach is preferable to a business as usual
Stability in terms of the principles that underlie it but is capable of adapting to changing circumstances
Leverage on best practices 11 11

12. 2 A proper retail market design is needed for demand response
Suppliers activities focus on selling energy and on related services and products. They are the main point of contact to customers
DSOs physically deliver the energy and are focused on grid stability and security of supply. They play the role of neutral market facilitators and perform load management when grid stability is at risk
New contractual agreements will be needed to ensure that the mutual interests of both market and system operators are met

13. Thank you for your attention
Pierre Schlosser – Belgium – Session 6 – Paper 0292