Fear of Gaming

Europe’s quest to become carbon neutral by 2050 will mean increased grid congestion with an expansion of intermittent renewable energy. 

This week’s show discusses how electricity networks could cope with such bottlenecks, and why a fear of gaming and market power is holding back regulators from choosing market-based options. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests: 

• Andrea Torjussen, Business Development and Regulatory Affairs Manager, Nodes
• Gesa Milzer, Project Manager, Nodes
• Jan Budke, European Regulatory Affairs Manager, Eon

Transcript

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:35

Hello listeners and welcome to the Monte Weekly podcast, bring Your Energy Matters in an informal setting. This week we take on a slightly different topic and delve into the nitty gritty aspects of the energy transition as part of Europe's ambitions to become net zero carbon by 2050. The continent faces a massive push towards green energy. All will and good except the devil is in the details. As more and more wind and solar units come online, the bottlenecks in the grids will increase as will costs. We will talk today about ways of alleviating such congestion and how to cut costs by using flexible units in local markets. To help me Richard Ferrison discuss this issue are Gisa Za and Andrea Torreon of Nodes Market and Janke of Eon an energy networks and retail company. A warm welcome to you all three. Hello. Thanks a lot, Richard. It's a pleasure. So if I can start with you, Andrea, the current regulatory environment, what are your expectations for the coming years? We talk about the green deal the post corona recovery. This basically means there's gonna be a lot more green energy coming on to the grid, doesn't it?

Andrea Torjussen, Business Development and Regulatory Affairs Manager, Nodes: 1:50

Yes. What we've seen before the green deal was the Clea energy package that started this, of energy sector into more renewables, a more market. We expect even though with Corona that the commission will continue in this regard. As we see with the green deal, the ambitions are high. A lot of new renewables will come online and they have to as well to meet the climate targets. And now the new climate targets that's are increased towards 2030 of a minus of 55%. We expect to see the green trans transition going on full speed towards 2050 to reach the net zero target.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:40

Absolutely right. There would be critics who would say, you can never become a hundred percent renewable because when there's no wind, there's no sun, you can't, there's nothing to, to what happens then, the times when it's very cold and dark in the winter. What can one say to, to these kind of skeptics here?

Andrea Torjussen, Business Development and Regulatory Affairs Manager, Nodes: 2:55

This is of course, an issue. As you say the sources you're mentioning, wind and solar, which we will be heavily depending on in the years to come, are as we call it, intermittent. So we can't decide when the sun is gonna shine or the wind is gonna blow and there will be times where there are too much or too little production. This forces us to think about the energy system in a new way. So traditionally we have been helped by. Power plants that plants have continuous production. These are now facing out like nuclear or coal power plants. And we also see that a lot of these renewables are being connected to the distribution grid and not the transmission grid as it has been. So this also causes more decentralized production, of course. And we need new solutions. In terms of what we then refers to as flexibility, including demand side flexibility, that can help in these instances, as you mentioned, when there's no production.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:59

So it's with the increased amount of renewables expected online. Are we talking, can we expect more congestion both at the transmission and as the distribution level on the grids?

Andrea Torjussen, Business Development and Regulatory Affairs Manager, Nodes: 4:09

I would say so. At least in the distribution grid where we. We now see increased congestions. This is also due to, to distribute generation, but also that the networks aren't keeping up with the facing in of all these renewables. In addition, the distribution system, operat need new ways of tackling these issues. That's where we want the flexibility market to help.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:36

And one of the ways in which, you deal with this congestion is what's known as re-dispatch, isn't it? What is meant by the term re-dispatch, if you were to put that into a sort of nutshell, if you like.

Andrea Torjussen, Business Development and Regulatory Affairs Manager, Nodes: 4:46

Yeah. So if I can do it as easy as possible. So re-dispatch is a form of congestion management where the system operator will basically turn off. Down production or consumption of each side of a congestion in the grid depending on which direction it is going in. So this is traditionally been done in the regulatory domain. So it's mostly been production being paid to be turned or down. And when we talk about re-dispatch, we want to move this into the market. And that's also an ambition in the European reg regulation to have a more market-based solution for re-dispatch.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:28

Excellent. So I think we'll come back to, to discuss the different options on the table, Andrea and what you at Nodes Market are doing. But if I can turn to you Jan the re-dispatch, what does it cost? I've seen some figures that the actual volumes of dispatch are around. What about 21 OTT hours, which is potentially the outputs of three nuclear reactors. Would that be fair?

Jan Budke, European Regulatory Affairs Manager, Eon: 5:49

Yeah, indeed. Richard that is better are than the numbers in Germany at the moment, whereas three quarter of that is currently affecting conventional generation and one fourth, so five hours more, less. It's affect the containment of renewable energies. But more interestingly, the numbers with regard to the financials is different. So they're the dispatching the, of the convention generation. It's costing less than the containment of the renewable energies. And in, in total. 1 billion Euro is paid per year for dispatching and for curtailment. And most of this curtailment takes place in the distribution grid because of course most renewables are connected to the distribution grid. But the source of the curtailment is mostly in place at the moment at the transmission grid.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:41

So this means the TSO then in effect is paying. Generators not to produce in one area and or another TSOs paying them to produce in a, in another one. Would that would be correct. Yeah. And this is running to. A billion euros a year.

Jan Budke, European Regulatory Affairs Manager, Eon: 6:55

Yes, there is the number. Exactly.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:57

Recently I saw that this number was coming down a bit for Germany at any rates that the figures from the third quarter indicate that the number is being reduced a little bit for the re-dispatch within Germany. Not so much on the borders with its northern neighbors.

Jan Budke, European Regulatory Affairs Manager, Eon: 7:10

Indeed, it is it is coming down a bit still being at a high level from my point of view, but coming down, of course, depending on different factors. Such as increased grid expansion on the one side, on the other side that that there might be less wind power in certain years at certain points of time. So there are definitely different factors, but I assume that in general, congestions will also play a role. In the future, although though there are big direct current transmission projects Germany to be complete, completed by 2026, but on the other hand, on the transmission side TSOs are obliged to, to foresee about 70% of the interconnection capacity. This increases the internal dispatch on their side, which is why they're, the numbers I assume will increase in future. And as Andrea said, we also forecast from the DSO side more renewables in future, more solar power especially, but also an increase of simultaneous demand coming from electric cars. Where, we'll, where we are currently having a ramp up, a high ramp up having started last year. And this will increase and put further pressure on the grid. We need to extend our grid heavily, but we see that flexibility can optimize the expansion of our grid and reduce the costs.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:34

So the combination of the sort of lofty high level, 70% target for cross border. As well as the increased amount of renewables and, potentially the rollout of electric vehicles and the use electrification of other sectors such as heating. This is adding to stresses on the distribution grid. Is it, Jan? Can you say something about the costs or the implications here?

Jan Budke, European Regulatory Affairs Manager, Eon: 8:58

We have different kind of implications. So when it comes to the electrification of feed and. Transport and this stress is mostly, the low voltage level and the transformers. The level of a medium voltage and and low voltage, that is the one case where we definitely see a problem arising in the coming years. On the other hand, the increase of distributed generation causes problems. Mostly in medium voltage and at at high voltage level and solar pv, also at a low voltage level. And these are two different aspects and they must be differentiated, but they can also be combined. For example, flexi making electric cars. And so the charging of electric cars, but on heat pumps are flexible to reduce the congestions at low voltage can also help to integrate more renewables at other point of time. So reducing congestions at high voltage levels. So there is a certain combination and. We have to think yeah. Of all voltage levels in the end.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:59

Absolutely. This, think of the system as a whole. But Gesa, if I can bring you in here, 'cause so we, these are the problems being faced on the grids, both transmission, but on the distribution level specifically. So what are the solutions here to alleviate this and to say, as the answers to. Bring in solutions for all different voltage grids,

Gesa Milzer, Project Manager, Nodes: 10:18

as it has been mentioned by Andrea already. And I think like it's it's a very well known topic. It's obviously grid investments. That's the first easy way out, I would say. But in the long run, as it also has been mentioned by Andrea and also by, I think, we comply with a green deal and such necessities this will only be, or also only be a solution which needs to be adjusted then in the future. We think this congest congestion. Problem in the low voltage, medium, and high voltage grid will persist unless we implement more dynamic solutions, and as such, make efficient and effective use of the resources that are available at the different voltage levels.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:07

Absolutely. So you have, the market-based solution and a cost-based solution. Could you talk us little bit through how these are different?

Gesa Milzer, Project Manager, Nodes: 11:14

Yes. The cost-based solution or also regulate the regulated approach as it has been mentioned by Andrea is obviously a relatively static way to. Apply this concept and it also changes per country. So without gain going too much into details. The general concept relies on the fact that specific assets, which are according to determined criteria, like the installed capacity or the type of energy or flexibility they provide that are subject or can be curtailed by the system operator if needed for the purpose of congestion management, and the operator of these assets will then be compensated financially.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:03

But, and the market based looks at what's out there in terms of, bringing market dynamics into these the Reese dispatch and these grid congestion issues.

Gesa Milzer, Project Manager, Nodes: 12:11

Yes. The market based approach, like based from the fact that there are so far not as, such as predefined. Strict criteria to participate is voluntary. So there is not obligation to participate in the market, and contrary to the cost based approach, the price that is actually agreed upon is subject or is subject to supply and demand, which actually brings in the market approach. And then. As such also gives it a more dynamic and possibly for certain problems, also a more suitable solution because like different types of flexibility can be used at a different price, locations and times, and maybe therefore a more appropriate solution for specific problems and a larger diversity of problems as they're likely to come up.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:10

There's a body of work in Germany at least, isn't there? That says that the market-based approach makes the system liable to gaming the gaming of the system and would increase market power of certain generational units in the system. How would you react to that?

Gesa Milzer, Project Manager, Nodes: 13:26

Yes, it is definitely a subject and it's been discussed several times. So I would say, and also like from the notes perspective, as a market operator, obviously there is a risk both for gaming but also for the execution of local market power. However, like when we compare the risk from the transmission grid to the distribution grid considering. The volumes we are talking about. And also, as such, prices, the potential benefit a potential gamer might be aiming for is considerably less, I would consider. And also in addition, gaming requires a certain predictability of the actual congestion, which is true. There are events where. This is easily to be done, but obviously when we talk about the distribution grid and also consider like the heterogeneity of the distribution grid and the end users, it'll be much more difficult to actually locate a congestion. And in addition also the direction of the concession. And as such as a gamer. Determine how you would behave on the market?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:39

Absolutely.'Cause the gaming, if I understand it correctly, is that a generation unit will withhold some of its or maybe a lot of its capacity in the day head market 'cause it thinks it can generate more on the basis of the congestion. In the intraday or balancing framework, is that correct?

Gesa Milzer, Project Manager, Nodes: 14:55

Yes. It's not only limited to production unit, but this is one scenario. There are different variations, obviously, from the consumption units, like there's also a certain gaming potential, however. The risks are different, and also like the cons, consequences, potential, severe consequences for actually production or consumption units. But yes, in general, yes.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:18

What's the view, Jan, from the DSO here, from the distributor, from the network side, is this something that you are concerned about or do you think maybe there's too much emphasis placed on this?

Jan Budke, European Regulatory Affairs Manager, Eon: 15:27

Yeah, that's a very good question. To be honest. I can understand the fear. Because the congestions mostly appear at limited grid elements at the moment, and at some points we don't see, for example, too many participants in a certain area because, for example, where you have lots of wind in a certain area there you don't have so much demand in general. This can happen, but there might also be other situations where you have got a better, better fitting and of course more liquidity also helps reducing the strategic gaming, although it cannot fully prevent it. But generally we could say it is not impossible to forecast grid congestions, especially when they depend on the weather. On the other hand, the network reconfiguration options. So the switching options on the distribution grid, especially when it comes to medium voltage level, I assume that they, this will increase in the future. Digitalization of the grids will increase and therefore the options for the system operators increases. And when you have more and more generally flexibility in the market, not only for congestion management, but perhaps also for balancing. And when when end users with smart meters, for example, wanna participate in the volatility of market prices, yeah. Then you have got more liquidity and then flexibility markets can be the most efficient solution. But generally I can understand the fierce, especially of the regulator side. And it's a topic which is discussed in a very hot manner in general. And also a lot of different solutions are discussed and yeah, they might help to prevent gaming. But so far we don't know whether this whether this really happens.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:12

Yeah, and you can answer this and maybe gisa, you could also add your views. What's the current situation in Germany? Does the regulator then have to decide which solution it opts for? Or is it, what's the current situation

Jan Budke, European Regulatory Affairs Manager, Eon: 17:24

currently? In Germany we've got a re-dispatch scheme only for conventional generators. And very large batteries. And in, in future and end of 2021, the renewable generators will also be included in the plan-based dispatching scheme, but it is still a cost-based scheme. So far no market-based solution is inside. Of course, Germany also has to transpose the electricity directive into national law. So in general, market-based solution shall be the number one solution unless the regulator says something else. And this decision currently has not been made, but according to the previous discussions, I assume that the decision is not so much in favor of. Market based solutions. And this is a pity, I would say, because for example, we as DSOs, we are also looking forward to integrate more demand response. Into our general toolbox, and currently we don't have a tool. And I think there the market-based solutions can be quite favorable.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:30

Absolutely. A better way of integrating the demand site. What are the next steps, Gesa here? What what needs to happen for a country like Germany to put in place? The market-based solution for re-dispatch.

Gesa Milzer, Project Manager, Nodes: 18:41

I wanted to add something to the previous question especially from the perspective of a market operator, if I may say so, to the gaming part, if possible.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:50

Sure.

Gesa Milzer, Project Manager, Nodes: 18:51

Jan mentioned it or touched upon it, like obviously as a market operator, I mean there is a certain. Of market monitoring possibilities that can be applied, that probably will be applied and in the long run will also be developed further, which I think is a subject that is considered by any kind of market operator that actually try to set foot on the market. And I think it's consequence coming to this risk. As Yan said, it would probably not appropriate to ignore it or to say it doesn't exist. But like several measures are in place to reduce the risk and they are applied already in the wholesale market for instance, and there are several more. If I come to the second question now, from a market perspective now, like when we. The next steps is for a market operator is to carefully observe the development in the different markets, like from the, also from a regulatory perspective, like how is the actual framework even developed or be adapted. And try to learn from it, and also to try to develop or to improve the platform accordingly, to make it a useful and applicable tool, which is actually useful for European markets. And not only for specific markets, however, certainly there are markets that are more evolved than others when it comes to the implementation of flexibility. So there's currently the focus when it comes to Germany. I'm more and more like looking into this re-dispatch field and I find it quite interesting because I think Germany, despite of the current apparent barrier we are facing, I find it interesting because, it also somehow provides a very interesting possibility to look into flexibility markets as a complimentary service to re-dispatch by combining both because with re-dispatch you cover certain assets and with flexibility you'll cover others, which as such, possibly if applied correctly, could probably a good solution for various problems that might come up in the future.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:13

Andrea, if I can bring you here. What's happening in other markets? Are other markets also opening up to this possibility for market-based re-dispatch and dealing with grid congestion in, in, in a market-based manner?

Andrea Torjussen, Business Development and Regulatory Affairs Manager, Nodes: 21:25

I don't have a very facts or numbers to give you, but I think in terms of European regulation, that is the general tone. To have a market dispatched is also a part of the regulation, and there's of course, exemptions to this as well. And countries are able to adjust what we've seen in Germany as we have talked about now. And in both Jan and Giza has mentioned. We don't see. Such a heated debate about gaming anywhere else. Right now, at least this could of course, become more pressing when flexibility markets become more mature. But as a general European rule, a market-based solution should be the first choice.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:09

So I suppose there's still probably a lot of work to do to alleviate these fears of gaming and market power and to get a market-based solution firmly on the table. Gesa, Andrea, and Jan many thanks for joining the Monte Weekly podcast this week. I'm sure we'll return to these subjects later. But in the meantime, thank you very much. So listeners, you can now follow the podcast on our own Twitter account at ly named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montenews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye.