Regulation and Transparency

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Transparency in regulating power networks is a democratic right of responsible citizens and consumers, and a transparent network infrastructure is vital to the success of an efficient energy transition. The energy industry needs a transparency transition.

Government transparency is a central aspect of a constitutional democracy. Citizens’ access to information about the activities of the state is vital for democratic self-determination. The expansion of electronic communication has bolstered a trend in society toward greater transparency, while authoritarian mindsets and behaviour are in retreat.

The regulation of power networks is an exception. It is largely intransparent. As consumers, citizens are must thus pay grid fees that are difficult to comprehend. In addition, a lack of data hampers scientific studies that are vital to a comprehensive and public discussion, which is part of the process of energy policy-making.

Not only state regulators, but also the network operators they regulate, face transparency demands. In light of the Energiewende, network users (producers, distributors, consumers and other service providers) increasingly need reliable and readily available data for a secure and flexible use of the network.

Expanding the network, its related costs, and new demands on infrastructure make transparency, especially in this area, a central condition for the success of the Energiewende. We are therefore considering ways for the energy business to become more transparent.

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Jesse Scott

Jesse Scott

Director International Programme (until September 2022)

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    Core results

    1. 1

      Short-term, well-targeted measures to protect consumers from power price shocks must be consistent with Europe’s transition to a power system based on high shares of renewables.

      Such a fully decarbonised system will be much more decentralised while relying on renewables, flexibility and an active ­demand-side. The EU Commission should initiate a well-prepared debate on necessary further adjustments to EU power market rules during the legislative period that starts in 2024.

    2. 2

      Ramping up renewables and energy efficiency will provide a structural solution to the supply crisis while keeping Europe on track to achieving climate neutrality. A well-­functioning internal electricity market is crucial for the efficient operation of an increasingly renewables-based power system.

      Renewables investment should be ramped up to close the supply gap and reduce Europe’s dependence on fossil fuel imports. Annual onshore wind deployment needs to triple while annual offshore wind and solar PV deployment needs to quadruple by 2030. Marginal ­pricing on wholesale markets will ensure the efficient use of electricity, balance supply through cross-border trade and enable demand-side flexibility and storage.

    3. 3

      Voluntary two-sided contracts for difference (CfDs) should become the standard approach for governments to support renewables investment, alongside merchant approaches such as power purchase agreements (PPAs).

      CfDs can ensure predictable revenue streams from renewable energy projects, thus reducing risks for investors and lowering financing costs. CfDs can also facilitate the market integration of renewables and skimming-off of windfall profits, generating revenues that can be used for targeted support. To quickly scale up renewables deployment, investors should be able to decide whether to use government-backed CfDs or to develop merchant-based renewables projects, e.g. through PPAs.

    4. 4

      The combination of two-sided CfDs, PPAs, and the skimming-off of windfall ­profits in emergency situations will help protect consumers from spiking power prices in the event of future fossil-fuel supply shocks.

      A harmonised EU approach to reducing windfall profits during emergency situations should replace the current inframarginal revenue cap, as the uneven and unpredictable implementation of the revenue cap is scaring off renewables investors. In the medium term, with a growing volume of renewable electricity produced under CfDs and PPAs, windfall profit claw-backs will become less relevant.

    From study : How Europe can make its power market more resilient
    1. 1

      The energy transition in the power distribution grids can be successful, even if all passenger vehicles are electrified.

      Grid-friendly charging reduces the peak loads created when vehicles and electric heat pumps are charged simultaneously. It can also shift electricity consumption to times with abundant generation from solar photovoltaics and wind turbines.

    2. 2

      Combining grid-friendly charging with the broader mobility transition can fund the energy transition in the electricity distribution grids by 2050, supplying 1.5 billion euros of annual investments in power lines and transformers.

      Without the mobility transition, annual investments of 2.1 billion euros would be needed to accommodate 45 million, instead of 30 million, electric cars.

    3. 3

      Electromobility can finance the expansion of the distribution network until 2050.

      Electric mobility increases electricity sales, while the overall investment needed for power lines and transformers does not increase. However, it is important that the participants in the mobility transition pay their fair share of grid fees.

    4. 4

      Smart charging can be designed to ensure that users hardly notice any restrictions.

      To achieve this, grid-friendly managed charging must become the standard. We need secure information and communications technologies, incentives and, if necessary, obligatory managed charging. Precautionary indirect control, in the form of incentives for grid-friendly charging, should take precedence over direct control by the distribution grid operator.

    From study : Distribution grid planning for a successful energy transition – focus on electromobility
    1. 1

      The Japanese power system can accommodate a larger proportion of renewables (RES) than is currently provided for in the government’s 2030 targets, while still maintaining grid stability.

      An annual share of at least 33% RES (22% variable renewables – VRES) can easily be integrated, while still maintaining grid stability within a tolerable range. A higher renewable share of 40% (30% VRES) could also be achieved with very low curtailment level.

    2. 2

      There already exist a number of technical measures to improve grid stability in situations where a high proportion of variable renewables could place a strain on grid operations.

      Indeed, VRES can contribute to maintaining grid stability by providing fast frequency response (FFR). On conservative assumptions, this study shows that such FFR services would enable the existing Japanese transmission grid to incorporate instantaneous VRES penetration levels of up to 60% in eastern Japan and around 70% in western Japan, while still maintaining frequency stability. These assessments confirm the trends observed in 2018 in regions such as Kyushu or Shikoku, where hourly VRES penetration satisfied more than 80% of demand (corresponding to more than 55% of all power generation). By 2030, these high regional infeed levels could become the norm for the Japanese system as a whole. Furthermore, implementing additional technical measures would allow even higher penetration levels to be reached.

    3. 3

      Integrated grid and resource planning can help mitigate the impact of wind and solar PV deployment on intraregional and interregional load flows.

      Increasing the proportion of VRES in the mix is expected to reduce power line loading in some regions and increase it in other parts of the system. The impact of VRES distribution on the grid must therefore be systematically taken into account in future grid development plans, in order to avoid creating line-loading hotspots.

    4. 4

      Non-discriminatory market regulations, enhanced transparency, and state-of-the-art operational and planning practices facilitate the integration of a higher proportion of variable renewables.

      In particular, renewables should be incorporated into ancillary service provision, since they can contribute to frequency stability, balancing, and voltage control in tandem with other technologies (such as demand side response, conventional generation, and storage).

    From study : Integrating renewables into the Japanese power grid by 2030 (in Japanese)
    1. 1

      The Japanese power system can accommodate a larger proportion of renewables (RES) than is currently provided for in the government’s 2030 targets, while still maintaining grid stability.

      An annual share of at least 33% RES (22% variable renewables – VRES) can easily be integrated, while still maintaining grid stability within a tolerable range. A higher renewable share of 40% (30% VRES) could also be achieved with very low curtailment level.

    2. 2

      There already exist a number of technical measures to improve grid stability in situations where a high proportion of variable renewables could place a strain on grid operations.

      Indeed, VRES can contribute to maintaining grid stability by providing fast frequency response (FFR). On conservative assumptions, this study shows that such FFR services would enable the existing Japanese transmission grid to incorporate instantaneous VRES penetration levels of up to 60% in eastern Japan and around 70% in western Japan, while still maintaining frequency stability. These assessments confirm the trends observed in 2018 in regions such as Kyushu or Shikoku, where hourly VRES penetration satisfied more than 80% of demand (corresponding to more than 55% of all power generation). By 2030, these high regional infeed levels could become the norm for the Japanese system as a whole. Furthermore, implementing additional technical measures would allow even higher penetration levels to be reached.

    3. 3

      Integrated grid and resource planning can help mitigate the impact of wind and solar PV deployment on intraregional and interregional load flows.

      Increasing the proportion of VRES in the mix is expected to reduce power line loading in some regions and increase it in other parts of the system. The impact of VRES distribution on the grid must therefore be systematically taken into account in future grid development plans, in order to avoid creating line-loading hotspots.

    4. 4

      Non-discriminatory market regulations, enhanced transparency, and state-of-the-art operational and planning practices facilitate the integration of a higher proportion of variable renewables.

      In particular, renewables should be incorporated into ancillary service provision, since they can contribute to frequency stability, balancing, and voltage control in tandem with other technologies (such as demand side response, conventional generation, and storage).

    From study : Integrating renewables into the Japanese power grid by 2030
    1. 1

      The Japanese power system can accommodate a larger proportion of renewables (RES) than is currently provided for in the government’s 2030 targets, while still maintaining grid stability.

      An annual share of at least 33% RES (22% variable renewables – VRES) can easily be integrated, while still maintaining grid stability within a tolerable range. A higher renewable share of 40% (30% VRES) could also be achieved with very low curtailment level.

    2. 2

      There already exist a number of technical measures to improve grid stability in situations where a high proportion of variable renewables could place a strain on grid operations.

      Indeed, VRES can contribute to maintaining grid stability by providing fast frequency response (FFR). On conservative assumptions, this study shows that such FFR services would enable the existing Japanese transmission grid to incorporate instantaneous VRES penetration levels of up to 60% in eastern Japan and around 70% in western Japan, while still maintaining frequency stability. These assessments confirm the trends observed in 2018 in regions such as Kyushu or Shikoku, where hourly VRES penetration satisfied more than 80% of demand (corresponding to more than 55% of all power generation). By 2030, these high regional infeed levels could become the norm for the Japanese system as a whole. Furthermore, implementing additional technical measures would allow even higher penetration levels to be reached.

    3. 3

      Integrated grid and resource planning can help mitigate the impact of wind and solar PV deployment on intraregional and interregional load flows.

      Increasing the proportion of VRES in the mix is expected to reduce power line loading in some regions and increase it in other parts of the system. The impact of VRES distribution on the grid must therefore be systematically taken into account in future grid development plans, in order to avoid creating line-loading hotspots.

    4. 4

      Non-discriminatory market regulations, enhanced transparency, and state-of-the-art operational and planning practices facilitate the integration of a higher proportion of variable renewables.

      In particular, renewables should be incorporated into ancillary service provision, since they can contribute to frequency stability, balancing, and voltage control in tandem with other technologies (such as demand side response, conventional generation, and storage).

    From study : Integrating renewables into the Japanese power grid by 2030 (Summary)
    1. 1

      Europe needs a “Renewable Energy Cost Reduction Facility (RES-CRF)” to fill the high-cost-of-capital-gap which currently exists in many member states in Central and South-Eastern Europe.

      Wind and solar are today cheap technologies that are on equal footing with coal and gas. However, high cost of capital oftentimes hinders renewables projects from going forward, even when there is excellent potential. Bridging that gap, a RES-CRF will bring significant cost savings to consumers and taxpayers in those countries

    2. 2

      The RES-CRF would provide a fifty-fold leverage of private-sector finance and will phase-out automatically as market confidence in high cost of capital Member States increases.

      The risk of the financial guarantee underpinning the RES-CRF ever being called is very small. We propose a set of concrete safeguards to ensure only high quality renewable energy investments will benefit and to avoid over-commitments.

    3. 3

      The next EU Multiannual Financial Framework should be used to finance the RES-CRF as a cheap support for the 2030-targets.

      Committed public funds to implement Article 3.4 of the new EU Renewable Energy Directive would create scope for establishing the RES-CRF. This would help Europe to meet its 2030-renewable energy target and enable all Member States to benefit from low-cost renewable energy.

    4. 4

      A pilot project should be launched before 2020 for proof of concept.

      A key design feature of the RES-CRF is its flexibility. Being largely based on contractual arrangements, it can be tested in specific sectors or Member States before a wider roll-out. Launching a pilot project before 2020 would help strengthen confidence in the instrument. A pilot can be financed from the running EU budget.

    From study : Reducing the cost of ­financing renewables in Europe
    1. 1

      Renewable energy investments are more capital intensive than investments in fossil-fired power generation.

      They are also much more sensitive to political and regulatory risks. This is highly relevant when addressing Europe’s 2030 renewables framework consisting of a binding EU target without binding Member States targets.

    2. 2

      The costs of capital for renewables vary widely between Member States.

      Perceived ex-ante risks translate into country specific premiums on the costs for renewable energy investments that have nothing to do with technology risks or weather conditions.

    3. 3

      Equalising costs of capital throughout the EU would save taxpayers at least 34 billion Euros to meet the 2030 renewables target.

      It would also allow for broader sharing of the social, economic and health benefits of renewable energy investments, and would particularly benefit EU Member States with lower than average per capita GDP.

    From study : Reducing the cost of financing renewables in Europe

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