Integrid - Bridging the Gap

65 8. POLICY AND REGULATION The Clean Energy Package for all Europeans (CEP) is a comprehensive update of the European energy policy framework designed to achieve the goals for 2030. The solutions developed and tested in the InteGrid project can support several of the central objectives laid out in this legislative package. The necessary regulatory tools and recommendations can be seen as a puzzle. For full deployment of the InteGrid solutions, seeking to unlock the flexibility potential for DSOs, consumers and other stakeholders, all the pieces need to be in place. Therefore, the InteGrid project provides the following recommendations to allow flexibility to be used by DSOs, provide consumers with energy and data services, and facilitate Demand Response (DR) participation in balancing markets, individually or through aggregation. Use of flexibility at distribution level, mainly for distribution investment deferral: The procurement of DER flexibility by the DSO to support distribution grid operation and, possibly, defer or avoid network reinforcements, is at the core of InteGrid. However, ensuring that regulatory conditions truly encourage DSOs to do so is very challenging, which requires that several regulatory aspects be addressed in a coordinated and comprehensive manner. Remove the CAPEX bias in DSO revenue regulation: Current DSO regulation fails to encourage DSOs to use flexibility because efficiency incentives are not evenly addressed in CAPEX or OPEX. What is more, DSOs may actually be penalized when reducing investments at the expense of increasing OPEX to remunerate flexibility providers, even if opting for a flexibility-based solution is less costly in the long- term. Therefore, the CAPEX bias embedded into DSO regulations should be removed. This can be achieved by decoupling new additions to the regulatory asset base (RAB) from the actual investments carried out by DSOs. The gradual implementation of this approach is advised to prevent abrupt changes in remuneration. Design cost-reflective network charges: Distribution network charges have traditionally been used mostly as a tool to recover DSO allowed revenues through the payments made by passive and largely passive electricity consumers. Therefore, simple tariff structures such as flat, time-independent, volumetric charges (€/kWh) are commonly applied, especially for household consumers. However, the growing penetration of DER changes this paradigm considerably, as DER introduces high diversity among distribution network users, with distinct and bi-directional capacity use levels. Leveraging on the deployment of smart meters, more advanced tariff schemes should be implemented. Purely volumetric network charges should be abandoned in favour of a more extensive use of capacity or fixed charges. Additionally, locational and time differentiation should also be introduced into the network, meeting a trade-off between tariff complexity and cost-reflectivity. Moreover, dynamic network tariffs can be used on top of static time-of-use tariffs to prevent short-term grid constraints. When implemented, dynamic network tariffs should be coordinated with local flexibility mechanisms. System wide reactions, e.g. due to a heat wave, could be addressed with day-ahead dynamic tariffs set by large network areas, whereas localized constraints within these areas can be addressed more effectively through local flexibility markets. Use of DER flexibility to support the distribution grid Demand aggregation and participation in balancing markets Providing value to consumers through energy and data services Remove the CAPEX bias in DSO revenue regulation Electricity tariffs that promote an efficient end-user response Local flexibility mechanisms Cost-reflective network charges & Flexible and transparent network access Fostering efficient renewable self-generation and self-consumption Balancing market rules for DER participation Distribution planning considering flexibility Providing a clear framework for metering data access and management Facilitating the development of aggregators