Smart consumers in the internet of energy

This CERRE Energy & Climate report analyses international case studies of innovative business models and regulatory arrangements and provides recommendations for a truly smart energy system.

“Active consumers who have access to distributed energy resources, such as solar photovoltaics, storage, electric vehicles and heating appliances will play a crucial role in the challenging transition to a low carbon energy system”, explains Monica Giulietti, one of the report’s authors.

For fairer prices: use tariffs based on capacity rather than on volume

The current network tariff regime is not optimal for a smart energy system. Researchers recommend that tariffs be more directly linked to costs. A more advanced tariff structure is feasible in a smart electricity network: tariffs can be dependent on time and location and adapt to local network congestion. “A shift towards tariffs based on capacity will also reduce the subsidisation of the energy system by poorer consumers to the richer ones, thereby improving the fairness of the tariff structure”, says Bert Willems, co-author of the report.

The DSO-TSO interaction models are to be enhanced

The report highlights different proposals for DSO-TSO interactions that allow the trade of flexible services provided by distributed energy resources under different regulatory and market contexts, in the United Kingdom, Australia, New York and Europe. “While we’ve observed that in all cases an expansion of the DSO’s roles, capabilities and coordination with the TSO is required, our analysis also shows that most jurisdictions have not yet identified their preferred organisational set-up. The European Commission should systematically take into account the differences of Member States, such as the number, size and independence of DSOs, in future studies or impact assessments”, says Karim Anaya, co-author of the study.

Both price and non-price factors are required for consumers to engage

Bringing together smart meter technology, blockchain and apps can help consumers to take part in energy transactions by informing them about the advantages provided by distributed energy resources at a given time. However, these technologies can only help if the costs for consumers are low. Otherwise, non-price factors such as climate activism or environmental preferences will be the sole drivers for consumers to participate in this system. Although financial benefits only cannot motivate consumers’ engagement in a complex system, they are significant signals. And we need strong signals if we want consumers to modify longstanding habits.

Going off-grid: the risk of death spiral

The authors warn that, in the long run, when the costs of storage and local generation are expected to drop, local energy communities might decide to disconnect from the distribution network and operate on a stand-alone basis. The cost of the distribution network will then have to be covered by the remaining network users who, as a result, will see their energy bills increase. This could lead to a “death spiral” where more customers leave the distribution network (though unlikely in northern Europe), making these obsolete. Networks would go bankrupt and only small island grids would remain.

“Smart consumers are highly dependent on the ecosystem they are operating in. We can learn from international experiences that Europe needs to develop innovative regulatory models and be ready to test new institutional schemes that involve consumers to support the energy transition. The work ahead goes beyond monitoring what the Clean Energy Package can deliver, we have to anticipate new trends and take action to give more clarity to what DSOs and TSOs can do together and avoid new bottlenecks”, concludes Chloé Le Coq.