The same goes for the granularity of DER compensation, which comes with the cost of advanced metering and billing systems, and can muddle the value proposition for risk-averse DER customers that do not understand energy market dynamics. Again, here aggregators can play a crucial role. In Germany, virtual power plants are used to aggregate many DER systems and sell their cumulative excess power in real-time electricity markets. This improves the overall responsiveness of small-scale DER to market signals, as more of the available flexibility is used. At the same time, the balancing responsibility is shifted away from individual DER customers to aggregators who can better manage this risk on the basis of a portfolio of DER clients.

Regulators also benefit from simplicity, both in the initial rollout of new rules and also in the ability to change them as they learn about the effectiveness of the rules.

Accurate pricing of both supply and consumption will steer operational and investment decisions in the direction that best matches the evolution of local grids. At some point, however, a more comprehensive overhaul of the governance structure will also be needed to enable successful power system transformation across all sectors.

Revisiting roles and responsibilities

The fundamental changes being observed in power systems call for a more systematic revision of the historical institutional structure. The reliable operation of local grids today requires enhanced co-operation between grid operators across voltage levels, on issues including grid congestion management, real-time grid monitoring, prioritisation of operational decision making, balancing and operating reserves, voltage support and improved co-ordination in case of unforeseen system events (ISGAN, 2014).

The DSO-TSO interface

One particularly important aspect in this institutional transition is the definition of the so-called TSO-DSO interface (DSO stands for distribution system operator). One of the main questions dealt within this is the allocation of ancillary service responsibility – for example, whether DSOs should be in charge of balancing their own distribution grid or contracting particular services for local congestion relief and balancing (Madina et al., 2018). An additional point that falls under the TSO-DSO interface discussion relates to data collection and sharing. The widespread adoption of advanced metering infrastructure is leading to a rapidly growing amount of data that can be valuable for system operation and planning, and commercial offerings. Especially in the context of more active management of the distribution level, this data is critical. The question of network visibility is particularly relevant in the face of market-driven adoption of DER, and can be addressed early on through the inclusion of monitoring technology in interconnection requirements and enabling or requiring data sharing between DSOs and TSOs.

It is important for policy makers to enable and co-ordinate the discussion regarding new data collection procedures and responsibilities. In Germany the 2016 Law for the Digitalisation of the Energy Transition was a good example of the broad range of aspects for consideration, including metering requirements, data-sharing processes and security requirements. Denmark provides an additional example of restructuring the TSO-DSO interface. Further to the creation of an electricity system operator (ESO), Denmark has also established a separate “DataHub”, accessible to all power sector participants. In this case, the separate creation of a data hub was seen as a solution to enable competition within the electricity market, particularly by countering information asymmetries between the retail arm of grid companies and independent retailers (Box 19).

Box 19. The role of data exchange platforms in changing power systems

The emergence of a greater number of grid-connected devices and new power system needs is also driving the establishment of data exchange platforms. A recent review by THEMA Consulting (2017) looks at the various models for data exchanges and how they fit in the context of more diverse stakeholder engagement in the power system.

Whether decentralised or centralised, data exchanges are aimed at removing barriers to entry for new actors, such as independent retailers or aggregators, improving efficiency in data management and empowering consumers.

Similar to the role of the system operator, data exchanges should observe full neutrality to ensure non-discriminatory data access and delivery. Here it should be noted that neutrality does not mean full open access to all data, but that actors with a legitimate need and authorisation should have access.

Across Europe, countries such as Denmark, the Netherlands, the United Kingdom, Ireland, Italy and Estonia have established centralised data platforms, while Sweden, Norway, Finland and Spain are in the process of implementing them. Some centralised platforms allow consumers not only to see their data, but also to authorise third parties, such as retailers or aggregators, to access their data. While it is necessary to have clear privacy and data ownership guidelines, this may help third-party providers to develop new service offerings for demand response and energy efficiency.

One key aspect of centralised data exchange platforms relates to the issue of governance, as it requires the sharing of responsibilities between TSOs and DSOs, as well as establishing datasharing protocols.

Source: THEMA Consulting https://docstore.entsoe.eu/Documents/News/THEMA_Report_2017-03_ES_web.pdf.

Aggregators

One notable change in the evolving landscape of stakeholders involved in the power system is the emergence of aggregators. In unbundled markets, aggregation allows the co-ordination of a number of smaller DER and their participation in balancing, ancillary service and wholesale markets. By jointly operating DER as virtual power plants, aggregators enable both minimum volume requirements and dispatch profile requirements to be side-stepped.

Depending on their nature, aggregators may be able to engage in serving a number of flexibility needs. Commonly small companies using proprietary software, independent aggregators have been a driver in the development of DER markets. On the demand side, their ability to engage a greater variety of low-cost resources can prove to be a cost advantage in the ancillary services market, outcompeting expensive peaking plants in the provision of reserves.

End consumers offering their flexibility through aggregation platforms may see benefits such as substantial reductions in network charges, or a fixed additional revenue source for offering their availability. In this case, the revenues from offering flexibility to aggregators need to offset a range of additional costs, the nature of which will vary depending on the type of resource. Even larger consumers may gain from the benefits mentioned above without increasing operational or administrative burdens.