New York - KAPSARC Workshop

1. A regulation upgrade for utilities
disruption?
New York– KAPSARC Workshop
Jean-Michel Glachant
Director “Florence School of Regulation”
@ European University Institute – Florence (Italy)

2. NO!
From the
future!
If any…

3. 1/ The EU context
What was it about?
Two decades to build kind of Market based power industry
“Unbundling” did cut the industry into two areas:
• 1- The “market area” has: market incentives, open entry,
competition watchdog
• 2- The “monopoly area” has: incentive regulation, monopoly
franchise, energy regulator
Core of EU incentive regulation was within low demand growth -
then incentive regulation targeted:
*lowering costs of “grid & system” operation (OPEX)
**linking “grid & system Op.” to wholesale market trade
3

4. 2/ Today&Future: 3 waves of disruption
What was it about?
• Wave of grid investment (said Euro “100bn” from 2015 to
2030) Continental scale internal market + EU common RES
energy Policy (20% RES in year 2020)
• Wave of system decentralization EU RES are local or
individual & not “Utility RES Portfolio obligation” + many grids
are unbundled (TSOs from DSOs; both grids from supply)
• Wave of full “digitalization” smart grids, smart metering, big
data + disruptive technologies storage, “market platforms”,
“internet of things”
4

5. 3/ 3 waves of regulation disruption
What was it about?
• Wave of grid investment Incentive Regulation was to lower
OPEX; with CAPEX being ROR > not framing efficient invest.
• Wave of system decentralization TSOs are few & regulators
did learn; DSOs are hundreds & very heterogeneous –
Markets were designed for national / wholesale; not local or
retail markets // new services + locally produced & valued
• Wave of full “digitalization” + disruptive technologies
1/Designing right incentives for monopoly innovation into
their “own system disruptions” is   ;
2/Reducing asymmetry of information & knowledge
production “Regulator / Operators” via “pilots & experiments”
is  , fuzzy & slow
5

6. 4/ 3 waves of regulation upgrade
What was it about?
• Wave of grid investment EU energy regulators (CEER) & EU
Agency (ACER) + EU Commission are already working on an EU
upgrade > will clarify a lot this year
• Wave of system decentralization End(?) 2016 CEER & ACER
will issue first comments or recommendations + Commission
a proposal new Market & Grids legislation > will clarify more
in 2017? Or only in 2018?
• Wave of full “digitalization” + disruptive technologies Much
more fuzzy??? Even not clear if it could be made by “Energy
regulation & policy” and not from “Digital economy & society
regulation & policy”
6

7. T&T experience for sharing data, assumptions & calculus
• Issue: almost black-out of the entire continental power system in 2006
because grid operators made wrong assumptions about the state of
neighboring systems when taking corrective actions
• Remedy: Regional Network Security Coordination Initiatives (Coreso, PSCI)
T&D relevance
• Issue: if/when DSOs act as system operator to foresee & prepare for
congestion in distribution grids
• Remedy: DSOs join these Reg. centers data, assumptions, & calculation
5/ Decentralization:
from T&T to T&D cooperation (1)

8. T&T for coordinating allocation of grid with energy trade
• Issue: inefficient use of border capacity because of separate clearing of
trade for (network capacity) and trade (energy markets)
• Remedy: “coupling” of trade in adjacent energy markets with ex ante firm
grid capacity offered to energy trade
T&D coordinating allocation of grid with energy trade
• Issue: if/when the T&D boundary would become a structural congested
bottleneck in the energy system that requires separate energy prices
• Remedy: DSOs build “T&D market coupling” algorithm
6/ Decentralization:
from T&T to T&D cooperation (2)

9. Unbundling
7/ Emerging businesses:
Market Approaches
 Old issue: unbundling TSO stricter than DSO, especially for small DSOs (TSOs will run
data-hub in Nordic countries; proposal in D)
 New issue: DSOs unbundled from utilities entering into new business (e.g. Alliander
statups and Eandis energy efficiency advice and coordination for municipalities)
Market design
Public service regulation
 Is an issue for competition in the market, but let for competition for the market,
e.g. city tendering for EC charging infrastructure and third party market facilitation
 Electric vehicle charging infrastructure: issue of roaming (with contract of other
supplier), and fuel station billing (without contract)
 Storage: price regulation in the market or competition for the market in case of
locational market power
 Market facilitation: assigned to third party in UK (Data Communication Company)
and Italy (Acquirente Unico)

10. Scope of involvement (& third party access)
 General principles: pilots with R&D budget (IR, NL, Italy), included in
RAB in motivated cases (UK, NL “proven long-term market failures”)
 Storage: max 50/100 MW and auctioning of capacity not used by
DSO (UK pilot); separate business (SE)
 Electric vehicle charging: assets financed by DSO R&D budget, but
separated from RAB to allow transition towards market (IR)
 Market facilitation: providing data to data hub and validation of data
(Italy), data hub operator (BE), smart meter without “after the meter
device functionalities, like display” (IR, NL)
8/ Emerging businesses:
Role for DSO

11. www.florence-school.eu
To conclude? A decade long regulatory upgrade debate
(efficient frame for investment wave) + (coherence for
decentralized power systems) + (keeping doors, brains &
wallets open to radical innovation)…

12. www.florence-school.eu 12
Thank you for your attention
Email contact: jean-michel.glachant@eui.eu
on Twitter: @JMGlachant already >15 000 tweets
My web site: http://www.florence-school.eu