Central Markets DebateHelsinki, April 14-15, 2016

Demand-side Response and the Role of Energy Data Hubs

EXECUTIVE SUMMARY..............................................................................................................................................................03

DEVELOPMENTS IN MARKET FACILITATION............................................................................................................................04

ROLES IN THE MARKET AND THE EFFICIENCY OF MARKET OPERATYIONS: SUPPLIER VOLUME

ALLOCATION BALANCING ........................................................................................................................................................05

THE FUTURE VISION OF A DSO................................................................................................................................................06

THE FUTURE VISION FOR SMART GRID DEVELOPMENTS......................................................................................................06

THE DEVELOPMENT OF THE EU FLEX MARKET AND THE ROLE OF THE AGGREGATOR......................................................07

THE AGGREGRATOR’S PERSPECTIVE ON DEMAND RESPONSE...........................................................................................07

FINGRID’S DATAHUB PROJECT: TOWARDS CENTRALIZED INFORMATION EXCHANGE ON THE

ELECTRICITY RETAIL MARKET..................................................................................................................................................08

DEMAND RESPONSE AND THE ROLE OF ENERGY DATA HUBS: THE FUTURE NEEDS OF DISTRIBUTION

SERVICE OPERATORS IN THE DEPLOYMENT OF FLEXIBILITY FROM AN EU PERSPECTIVE..................................................09

BUSINESS AGILITY IN MARKET FACILITATION..........................................................................................................................10

A REGULATOR’S PERSPECTIVE ON THE ENERGY MARKET....................................................................................................10

CONCLUSION............................................................................................................................................................................11

TABLE OF CONTENTS

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EXECUTIVE SUMMARYThe market is rapidly changing as a result of EU initiatives to reduce greenhouse gases. Energy efficiency and renewable energy systems are triggering a paradigm shift in energy markets. The electrification of society and the increase of less predictable energy sources, such as wind and solar energy, are also changing the energy system. And these developments are impacting the business of balance responsible parties (BRPs), transmission system operators (TSOs) and distribution system operators (DSOs). It is expected that consumers and businesses will take a bigger interest in their energy consumption or expenditure related to energy consumption.

As energy production becomes more unpredictable, market parties will benefit from more detailed information on consumption and production. Further, it is expected that market parties will look at grid users as an alternative source of energy in order to facilitate additional flexibility. As consumers are incentivized to reduce their energy consumption, market parties will monitor their behavior and will need more information on the effect of incentives on this behavior.

With the movement to a new energy system, data hubs will have a larger role. But there is uncertainty about the nature of this role. What are market parties’ information needs? What information can be provided by data hubs? What is their role in demand response?

This debate event focussed on the effect of flexibility and information services on the business of data hubs, including the new opportunities and threats that have been created, and considered how to facilitate this market development.

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DEVELOPMENTS IN MARKET FACILITATION

Dorita Goeijenbier, CGI NetherlandsWith respect to our previous debate, some political developments have had an unprecedented impact on the European energy market in the past year. In December 2015, the Climate Agreement was signed.The goal was to achieve a more competitive, secure and sustainable energy system that meets long-term 2050 greenhouse gas reductions targets. In keeping with this goal, a next-generation energy system would enable consumers to use and provide flexibility for renewable energy sources. We can identify three shifts in the market that facilitate the move to a leaner, cleaner and optimized energy society, where consumers are empowered to participate in energy supply. These shifts are explained further ahead and run parallel to the decentralization of the grid. It is expected that local communities will now manage their own energy production and distribution. Digital transformation is the key word in this development. New IT solutions and innovations will be key enablers that make this possible. It is also clear that these developments will lead to the generation of exponential volumes of data on a daily basis. This data can be analyzed and used to control the grid in an optimal way, where flexibility is unlocked and leveraged.

What is the outlook for market facilitation? Ultimately, in a competitive flexible market, suppliers and aggregators will package and test their customer propositions and the most effective propositions will succeed when competing on a level playing field. Thus, competitive pressures will ensure the development of the most effective consumer engagement techniques. Market facilitation can and will have a role in this development by providing high quality and consistent information to end consumers or third parties.

The question is what information is needed, as interval data is not granular enough. We distinguish three types of flexibility:

• ToU (Time of Use) involves varying prices during the day, and not just a night and day profile. It enables peak shifting/shaving and supply flexibility, based on surplus or shortage. This gives customer’s time-varying rates that reflect the value and cost of electricity during different time periods. Armed with this information, customers tend to use less electricity at times when electricity prices are high.

• Incentive-based demand response programs pay participating customers to reduce their loads at times requested by the program sponsor, and are triggered either by a grid reliability problem or high electricity prices. There are tariffs for storage and there is a contract for using energy by switching off household appliances when there is a shortage.

• Automatic load control (customers give another party the right to control their devices).

Market Facilitation 2.0 will have a focus on three areas. First, the handling of large volumes of metering data (big data) in an efficient manner. This is needed to control the grid locally, and in case of a potential surplus of renewables, these can be traded on the wholesale market in order to facilitate balancing. This data can also provide better insights for load forecasting and contribute to maintaining the security of supply on the national grid. Secondly, the flexible market for demand and supply will have to be managed to prevent local congestion. Market Facilitation 2.0 can support the settling of transactions on a local or central level. The market operator can fulfill a role as aggregator to provide information to third parties about consumers, regarding capacity of energy storage, actual flexibility delivered and insight into the effect of price incentives on consumer usage patterns. A third area is support for smart solutions that monitor the local grid and enable a demand-side response.

CGI has published a series of white papers on this topic, which can be found on our website.

ROLES IN THE MARKET AND THE EFFICIENCY OF MARKET OPERATIONS: SUPPLIER VOLUME ALLOCATION bALANCINg

Adam Richardson, Elexon Source: Frontier economics

Future utilization of demand-side response (DSR) depends on structure, market roles and contract types. In Great Britain, the roll out of smart meters is slipping to beyond 2020. Currently, in different countries across the globe, there is no real effort to improve system flexibility by bringing in opportunities for demand response so that shifting electricity demand can be incentivized when the wind is blowing or the sun is shining. Instead, renewable operators are simply being given the same incentives as conventional generators in order to switch off and prevent the grid from being overloaded.

We believe DSR has a vital role to play in the evolution of electricity markets. It gives customers more insight and therefore more control. It helps reduce costs across the energy supply chain and supports a zero carbon society by enabling everyone to make better use of alternative energy sources. In Great Britain, the mechanism for balancing electricity supply and demand functions almost on a real-time basis. The balancing mechanism balances supply and demand at a half-hour trading period every day.

The balancing mechanism impacts the flexibility of the future system. New market models can evolve. For example, supplier-to-supplier trading and distributor network operator (DNO) and system operator (SO) sharing. These supplier-to-supplier services provide for half-hour settlements to large clients. DSR trading between suppliers may also help as it is an additional source of flexibility that is available just before gate closure. In addition, during the “pre-gate closure” phase, there is the potential for suppliers’ wholesale and balancing costs to be reduced through DSR trading. Suppliers will agree to trade the required volume of energy and notify the energy contract volume aggregation agent.

What role will DSR play for different market participants? The value that market participants can derive from DSR, and the specific problems that may result from their use of DSR, are outlined below. First, suppliers can derive value from DSR in two principal ways. They can:

• Shift their consumers’ demand to coincide with lower wholesale prices, thereby minimizing their wholesale electricity costs

• Use DSR to stay in balance, thereby minimizing any imbalance charges

Secondly, grid operators will become DSOs and will have to deal with balancing the grid in the future, specifically for congestion in the distributed grid. DSOs might then need to invest in the grid because their suppliers’ use of DR creates new peaks. DSOs can also derive value from DSR through investment deferral or avoidance, which could lead to lower investments. DSR enables them to potentially actively manage the net electricity flows across their network in order to balance more flexible loads and intermittent generation.

The SO can use DSR to balance the system. However, short-term system balancing will require a quick response, and therefore will be limited as a substitute for flexible generation. These developments will impact the interaction between TSOs and DSOs on an operational level. An aggregator can fulfill a supporting role by providing the necessary information on the right granular level that is different for a TSO and a DSO. Action can lead to operational and financial impact for a DSO, which can be made transparent by the aggregator. Local balancing will support future value for DSR.

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THE FUTURE VISION OF A DSO

Ville Sihvola, EleniaElenia operates in more than 100 local districts in Kanta-Häme, Päijät-Häme, Pirkanmaa, Central Finland and Ostrobothnia, supplying heating and electric power to 415,000 consumers in their homes and businesses. The group’s subsidiary companies include Elenia Networks, Finland’s second largest electricity DSO. Energy, in its various forms, is a prerequisite for modern everyday life and a DSO should help customers’ everyday life flow smoothly. A modern DSO runs its services and business like any company in a competitive market with modern regulation.

One of Elenia’s main challenges has been the impact of weather conditions on network stability. The Elenia weatherproof project aims to complete 70% of cabling underground by 2028. Elenia has also begun building a smarter network in order to improve services to clients and enhance operational performance. It envisages that the benefits of a smarter network will include enhanced customer service, efficiency in the competitive energy market, integration of renewable energy, optimization of network usage and investment planning.

THE FUTURE VISION FOR SMART gRID DEVELOPMENTS

Prof. Jarmo Partanen, Lappeenranta University of TechnologySmart grid developments are driven by:

• Mass production of wind and solar power with low operational costs. 5kWH generation units are added every three seconds

• P V versus energy storage: Green power will be almost zero

• Digitization

The price of new renewable energy sources is coming down rapidly, making it more competitive as compared to traditional fossil fuels like LNG, natural gas, oil and coal. The mass production of renewable energy could lead to weather dependent production, which generates power at low operational costs.

While weather dependent electricity distribution is sustainable, it impacts the market—causing higher volatility in electricity prices and disrupting operations. This could lead to serious economic problems for existing power plants, leading to power balance challenges that impact the reliability of the energy system.

The main challenge for the market is how to solve this problem and build a reliable energy system. This could be achieved through:

• Efficient use of the capacity of the energy system

• Power balance management

• Improvement of cybersecurity, along with local production and storage

THE DEVELOPMENT OF THE EU FLEX MARKET AND THE ROLE OF THE AggREgATOR

Frits Bliek, USEF The USEF foundation created and maintains the Universal Smart Energy Framework. The framework describes the interaction between different roles and addresses the contractual arrangements and agreements required for facilitation. The advantages of the framework are: service to anyone, new energy services, increased competitiveness and business expansion. USEF’s expertise is focused on flexibility in the market today and how this will be used tomorrow. Based on that knowledge, a framework is created. In order to facilitate this, USEF offers access to specifications, designs and implementation guidelines.

The flexibility of today’s prosumers is beneficial to TSOs, BRPs and DSOs. Aggregators will be able to unlock prosumers’ flexibility and offer this to market parties. USEF offers an operational model for the delivery of flexibility through prosumers. This model describes contract, plans, validations, operations and settlement processes. The USEF model is an integral, open, scalable, replicable and market-based model. USEF describes the market for flexibility and provides access to:

• A set of specifications, designs and implementation guidelines

• A reference implementation to accelerate large-scale deployments

• Pilot results and insights

USEF aims to become the de-facto standard. Therefore, the foundation’s current target is to ensure that it is included in 25% of smart energy systems in at least five different markets.

THE AggREgATOR’S PERSPECTIVE ON DEMAND RESPONSE

Dr Paul Troughton, EnerNOCEnerNOC operates demand response programs throughout North America, Europe and Asia. Program rules vary by utility or grid operator. The only way for aggregators to resell flexibility to a counter party is through direct load control in which the aggregator controls devices from consumers/businesses. Bilateral agreements don’t work.

An aggregator manages access to data through:

• Finding the right combination of customers to meet a utility’s needs

• Protecting customers and the utility from non-performance by mitigating risk through portfolio aggregation

A comparison between the different markets in Australia and New Zealand, especially in relation to customer participation in instantaneous reserves and the wholesale market, may lead to some interesting findings. Especially in the case of New South Wales and Victoria in Australia, and New Zealand, that have highly competitive retail markets.

For instantaneous reserves, no aggregation is allowed. In Australia, only aggregation by retailer is allowed, which results in only one type of customer participating in both markets. On the other hand, in New Zealand, where aggregation is allowed by independent aggregators, 80% of fast instantaneous reserves are provided by customer loads.

Australia has a different type of dispatch market, one without the BRP role. Customer participation is realized in the wholesale market when there is a provision for independent aggregators. The effect is that 12% of peak demand is dispatchable and leads to flexible DR. From this comparison, it is clear that independent aggregators have the largest participation

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FINgRID’S DATAHUb PROJECT: TOWARDS CENTRALIZED INFORMATION EXCHANgE ON THE ELECTRICITY RETAIL MARKET

Pasi Aho, FingridThe energy market is often characterized by an oligopoly. In Finland, there is currently not much switching between suppliers, but consumers are becoming more active. There are 100 retailers and 80 DSOs.

In 2014, the Ministry of Economic affairs published a study about the future of data exchange solutions for the retail electricity market, taking a 10-year perspective. Based on this study, it was advised that Fingrid should be responsible for the development of a central data hub and new services to optimize information exchange on the retail market. These included the cancelation of contracts, moving in and out, customer switching, and imbalance settlement services.

The official project started in 2015. The aim of the project was to support the central data hub’s market processes for information exchange between market parties. Since the project launch, Fingrid has defined market processes and provided a technical description for data exchange in close collaboration with the working groups that have been appointed by Finnish Energy. The working groups are represented by retailers and distribution grid operators.

Some key features are the monitoring of operational quality, open interfaces for third parties and a transfer to GS1 codes (EDIFACT will be phased out).

In 2016, Fingrid started by having a public hearing of the results, publishing functional and technical specifications, and initiating solution procurement. An important part of the project is data migration from all market parties through a migration expert group that will be appointed.

Fingrid plans to finalize a contract with the selected supplier in Q3 2017, which will be the starting point of the implementation of the data hub solution.

DEMAND RESPONSE AND THE ROLE OF ENERgY DATA HUbS: THE FUTURE NEEDS OF DISTRIbUTION SERVICE OPERATORS IN THE DEPLOYMENT OF FLEXIbILITY FROM AN EU PERSPECTIVE

Peter Hermans, StedinThe Dutch market situation is highly competitive and well facilitated. Currently, data hubs facilitate market parties and not end consumers. In the political debate in Brussels, DSOs and TSOs are seen as one system. TSOs are responsible for security of supply. It will become more and more difficult for TSOs to balance the low-voltage grid on decentralized resources in the future when there is no or limited DSO-TSO interaction to facilitate the exchange of information regarding renewable energy sources.

An evolving environment needs greater cooperation between TSOs and DSOs to solve their respective cost challenges efficiently. The challenges to improving DSO and TSO cooperation include:

• Uncoordinated access to resources

• Regulatory uncertainty

• Lack of grid visibility (insufficient bi-directional exchange)

A central data hub can act as a market facilitation service with TSO-DSO interfaces for information exchange. However, congestion management and balancing cannot be seen as two separate things. The debate should be about the services that can be supported by the data hub, instead of who is running the system. The TSO and DSO platforms should be aligned and interconnected.

What information is needed for the different roles and responsibilities? The TSO needs a different time granularity (real-time data) to balance the grid. On a local level, DSO “day ahead” forecasting is performed based on the metering data from every grid connection to avoid congestion in the distribution. This involves conforming the grid code for every connection point > 2MW. Subsequently, a forecast for the needed transport capacity should be set up for each hour of the day, which is also called T-prognosis, and sent to the TSO. This level of granularity is not really needed to balance the grid. However, it is necessary to perform load flow calculation for grid safety. Currently, the quality of forecasts does not meet expectations since there is no incentive for providing the correct data for T-prognosis. BRP should receive incentives to support the location aspect in forecasting, which is needed to avoid unwanted interference of actions (congestion management versus balancing).

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A REgULATOR’S PERSPECTIVE ON THE ENERgY MARKET

Eduardo Teixeira, ERSE

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The main objectives of the European energy policy are security of supply, competition and sustainability. It’s up to regulators to promote coherence and effectiveness in different development areas—economic, social and technological. Regulators will be required to:

• Adopt a consumer-centric model and a prosumer perspective (focused on energy efficiency, small and decentralized generation, and electric mobility)

• Facilitate innovation in the energy business and diversity in market approaches

• Deal with increased generation intermittency and price volatility, arising from a model oriented towards renewable energy

• Address the environmental and economic sustainability of the energy market in a transparent and competitive atmosphere

The main objectives of the European energy policy are security of supply, competition and sustainability. It’s up to regulators to promote coherence and effectiveness in different development areas—economic, social and technological. Regulators will be required to:

• Adopt a consumer-centric model and a prosumer perspective (focused on energy efficiency, small and decentralized generation, and electric mobility)

• Facilitate innovation in the energy business and diversity in market approaches

• Deal with increased generation intermittency and price volatility, arising from a model oriented towards renewable energy

• Address the environmental and economic sustainability of the energy market in a transparent and competitive atmosphere

Consumers play a critical role in the solution. An efficient and effective way forward seems to be to balance the regulatory equation by fostering demand-side participation in the market. The data and information exchange between consumers, market participants, regulators and policy makers will now become increasingly important. As a result, the importance of data management in an increasingly complex energy world is increasing. With a significant part of the data being common to consumers, policy makers, regulators and market parties, there is a need for structured data and harmonized access. This leads to a centralized data model. Consequently, regulators tend to favor central data hubs, provided that they are properly designed and operated.

bUSINESS AgILITY IN MARKET FACILITATION

Arwin Scholten, EDSNEDSN, the Dutch central market facilitation agency, made a concerted effort to become a robust market facilitator in 2013–2015. It focused on developing:

• A professional workforce and organization

• A robust development process

• Clear governance between EDSN, grid companies and commercial market parties

• Good service operations

The result of this program was that projects were delivered on time and within budget, and met all agreed specifications. Service operations were of a high quality and EDSN had high employee satisfaction.

Now, EDSN faces a new challenge. Innovation waves, such as those created by open data, big data, API management and the Internet of Things, are speeding up. However, delivery time remains at a minimum of 14 months. In order to facilitate faster delivery, EDSN has formulated four themes—continuous delivery & integration, pace layering & agile SDLC (systems development lifecycle of software development), portfolio management, and service transition management. Using these themes, EDSN follows a specific strategy for each application and user group and is moving towards a fully agile environment.

CONCLUSIONThe Central Markets Debate offered participants an overview of the current developments that are shaping central market facilitation, especially the requirement for a next-generation energy system, the impact of digital transformation, the future outlook for market facilitation and the emergence of Market Facilitation 2.0.

A key focus area during the event was the role played by demand-side response and energy data hubs in market facilitation. Clearly, DSR has a significant role to play in energy markets—facilitating the evolution of new market models and impacting various market participants differently. In addition, we also explored how central data hubs, such as Fingrid’s datahub project, have successfully provided a market facilitation service.

Themes that featured prominently during the event included:

• Developments in market facilitation

• Roles in the market and the efficiency of market operations

• The future vision of a DSO

• The future vision for smart grid developments

• The development of the EU flex market and the role of the aggregator

• The aggregator’s perspective on demand response

• Fingrid’s datahub project and the role of a centralized information exchange on the electricity retail market

• Demand response and the role of energy data hubs

• Business agility in market facilitation

• A regulator’s perspective on the energy market

Considering the impact that the current paradigm shift in energy markets will have on TSOs and DSOs, the debate event also included a session on the future vision of a DSO; drawing on how Finland’s second largest electricity DSO, Elenia Networks, built a smarter network, and the benefits of this transition were also discussed. These outcomes included enhanced customer service, efficiency in the competitive energy market, integration of renewable energy, optimization of network usage and investment planning.

At the end of this international debate event, participants left with a deeper insight into the role that datahubs and demand response would play in the current changing energy market across different regions. These events, and particularly this year, hope to support all participants of the energy market to become better equipped with increased knowledge and understanding to help support their transition to a new energy system, driving transformation across global energy markets.

A special thanks from CGI to all of our attendees and speakers who made this a successful and insightful event.

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