1. Demand-Side Management Methods to Address Network Shortages
28 November 2014, EPG Annual Strategy Summit
David Haverbeke, Partner at Fieldfisher Brussels, Energy and Utilities Practice

2. Outline Context What is Demand-Side Management?
Policy Measures at EU level
Case Study at national level
Conclusion and Prospective Comments

3. Gen TSO DSO Sup C ARP DRA Public Authorities
Balancing
Balancing
ARP
DRSA
Demand-Response
DRA
Public Authorities
NRA
Minister
Administration

4. Context
Current Key Challenges (ENTSO-E, Market Design Policy paper, 15 September 2014):
Effectiveness of price signals to stimulate appropriate investments and performance
Network Balancing prices should be reflective of full system costs
Operational issues
Market design needs to address capacity adequacy and flexibility needs
Even where capacity is not an issue, integration of increasing variable RES production requires flexibility from both generation sources and demand side
Hedging products implemented on a national level should be amendable to enable cross-border trading and progressive regional harmonisation
Demand-Side Management should participate as much as possible including as hedging products (capacity markets, flexibility markets, system service products) to ensure effective investment signals

5. Context
Specifically for Demand-Side Reponse (ENTSO-E, Policy Paper, 15 September 2014)
roles and responsibilities TSO and DSO
Defining efficient data handling procedure
Ensuring security of supply with DSR
Consistent ground-rules at EU level
Increasing attention from the industry (e.g. Eurelectric insisting i.a. on the cross- border perspective in the development of capacity and flexibility markets)

6. What is Demand-Side Management ?
Classically defined as: “the modification of consumer demand for energy through various methods such as financial incentives and education”
Demand Response “is a process to manage consumer consumption (demand) of electricity in response to supply conditions.“ Specific pooling/collection of consumption (behaviour) as a part of optimisation of consumption generally for a group of consumers
Demand-Side Management relates to optimisation of consumption typically for one consumer. Usually, the goal of demand side management is to encourage the consumer to use less energy during peak hours, or to move the time of energy use to off-peak times such as nighttime and weekends.
Peak demand management does not necessarily decrease total energy consumption, but reduces the need for investments in energy networks and/or plants for meeting peak demands. An example is the use of energy storage units to store energy during off-peak hours and discharge them during peak hours.
No binding definitions EU Regulations, at this stage more of a “regulatory concept“ - At level of EU Member States, the “concept” is gradually being implemented.

7. What is Demand-Side Management?
Demand Response Aggregator
Aggregator = Collector
Source: Entelios AG, 2012

8. Policy Measures at EU level
Directive 2009/72: “Member States shall ensure the implementation of intelligent metering systems that shall assist the active participation of consumers in the electricity supply market.” Demand Response has played a significant role in EU thinking on Smart Metering
Energy Efficiency Directive 2012/17 of 25 October 2012
Cons.“(44) Demand response is an important instrument for improving energy efficiency, since it significantly increases the opportunities for consumers or third parties nominated by them to take action on consumption and billing information and thus provides a mechanism to reduce or shift consumption, resulting in energy savings in both final consumption and, through the more optimal use of networks and generation assets, in energy generation, transmission and distribution.”
- Cons.“(45) Demand response can be based on final customers’ responses to price signals or on building automation. Conditions for, and access to, demand response should be improved, including for small final consumers. Taking into account the continuing deployment of smart grids, Member States should therefore ensure that national energy regulatory authorities are able to ensure that network tariffs and regulations incentivise improvements in energy efficiency and support dynamic pricing for demand response measures by final customers. Market integration and equal market entry opportunities for demand-side resources (supply and consumer loads) alongside generation should be pursued. In addition, Member States should ensure that national energy regulatory authorities take an integrated approach encompassing potential savings in the energy supply and the end-use sectors.”

9. Policy Measures at EU level
Energy Efficiency Directive Article 15:
“4. […]. Member States shall ensure that network operators are incentivised to improve efficiency in infrastructure design and operation, and, within the framework of Directive 2009/72/EC, that tariffs allow suppliers to improve consumer participation in system efficiency, including demand response, depending on national circumstances.” (…)
“8. Member States shall ensure that national energy regulatory authorities encourage demand side resources, such as demand response, to participate alongside supply in wholesale and retail markets.“
Stronger demand response in distribution networks. Reconsider the role of DSOs (unbundling) and consider the role of third parties (such as aggregators and energy services)
Transparent and easily understandable rules and standards. Further EC reflection: (Action Plan for Europe) and lobby ongoing:
Eurelectric: strong link with smart meters/grids, domestic use: Eurelectric Task Force on Smart Grids
ESMIG: “Both the European Union and the Member States have included Demand Response capabilities in their deliberations on Smart Metering - And that is good!”

10. Policy Measures at EU level
Characteristics: reduction or shift of consumption
Benefits for Customers, Network Operators, Producers (and even Suppliers)
Philosophy: from "Generation follows Demand" to "Demand adapts to Generation“
 negawatt = greenest electricity = energy efficiency
Link with Smart Grid/ meters: a roll-out of smart meters as a first step or prerequisite to demand response (Eurelectric)? NO!
Electricity // but also gas, water,…
DR Players: Entelios, EnerNOC, Viridity Energy, Honeywell, Siemens, BuildingIQ, Powerit Solutions, Enbala

11. Policy Measures at EU level
Non-discrimination between:
TSO vs. DRA's (as like in switching);
Tariffs and DRA's;
Types of Clients: 1 Client (too little), 1 type of (domestic) clients: too costly vs benefits;
Types of Clients: continuous consumption vs. peak / off-peak consumption
Demand response as a "resource" vs other "resources" (wind, biomass, …)
Variable and complex prices and benefits vs. striving for uniform pricing and transparency
Market behaviour: effects of more volatile or variable retail pricing regimes and consumption patterns expected from DR programs // unpredictability? => set barriers, regulation // Difference in interests of market players: e.g. TSO/supplier

12. Policy Measures at EU level
Government intervention (subsidies (also for smart meters (necessary)), fiscal encouragement) vs. market functioning
Adaptations in law: Quid technical regulations? Data protection / privacy? Together with smart grid regulation or stand-alone?
Legal unbundling? Legal unbundling may also be required to ensure that the beneficiaries of peak loads are not able to block DR
Quality standards for DR Aggregators? Licence by regulators?

13. Case Study
Source: Entelios AG, 2012

14. Case Study Usual methodology for identifying commercial SDR potential
Identification of flexible processes
Processes and loads
Boundary conditions
Impact
Identification of flexible power
Size and availability
Reponse time and portfolio effect
Maximise value of flexible power in light of SR and balancing
Integrate flexible power (communication, automatisation and monitoring)
Industrial Processes with DR potential are cooling, heating and pumping in energy- intensive industries or for on site back-up generation flexibility

15. Case Study: Belgium
Some facts and figures about the Belgian electricity market
Nuclear phase out act 2003
Since 2007, signals of structural electricity generation undercapacity
Government decisions 2012: towards a mix of RES and flexible gas-fired baseload generation
Launch in 2013 of call for tender for new capacity ( MW)
Launch in 2014 of strategic capacity reserve (1250 MW) including Strategic Demand Reserve (SDR)

16. General text slide
Case Study: Belgium
Central to SDR enforcement: balancing responsibility of Access Responsible Party (ARP)
Regulatory basis: Grid Codes of Elia and/or DSO’s
Network zone balance is first line responsibility of TSO but per access point contractual balancing commitments of ARP
Situation today:
tariff for individual imbalance with distinction between positive and negative quarter-hourly imbalance
Amendments to ARP contract to new functioning rules SGR and SDR

17. Case Study: Belgium Regulatory Basis for Strategic Demand Reserve
Law of 26 March 2014
Ministerial decree 3 April 2014
CREG decision of 5 June 2014
Elia Functioning Rules and Contract for SDR
SDR Bidding Instructions
Impact on market functioning (e.g. on power exchange Belpex – relation with announced ‘super-fine’ of EUR/MWh for ARP in imbalance)
Next step: start of SDR operations first winter period 1 November (until 31 March 2015)

18. General text slide
Case Study: Belgium
Relationship between SDR and ARP – specific case of so-called “disconnection plan” of Elia
Ministerial decree of 3 June 2005: more actual than ever
procedure for protection against unexpected event vs. procedure in case of announced scarcity
Benchmarking tool in case of intervention of Elia
Are the incidents caused by Force Majeure?
Could the network operator do something else or did it have to do so?
Is the damage in causal link with a fault of the network operator?
Impact different on generators (CIPU contracts) and ARP’s (distinct between intermediaries, suppliers and consumers)

19. Conclusion and Prospective Remarks
Demand-side management has been allegedly ineffective because it has resulted in higher utility costs for consumers and less profit for utilities
One of the main goals of demand side management is to be able to charge the consumer based on the true price of the utilities at that time
If consumers could be charged less for using electricity during off-peak hours, and more during peak hours, supply and demand would theoretically encourage the consumer to use less electricity during peak hours, thus achieving the main goal of demand side management
An issue of DSM is privacy: The consumers have to provide information about their usage of electricity to their electricity company

20. Conclusion and Prospective Remarks
Many uncertainties remain for SDR, both markettechnical as regulatory, with necessity for:
Clear signals from regulators and network oparators
Increased vigilance from market participants
Check of existing contracts (both regulated and non-regulated) in light of the changed market circumstances and SDR potential
Monitoring of:
regulatory and contract amendments (consultation periodes)
expected policy changes both at EU (new Commission) and national (new Governments) levels
As a market participant, adoption of SDR strategy taylor-made to the existing and expected requirements and opportunities

21. Q&A

22. Blank
David Haverbeke