This paper proposes a pragmatic way to integrate non-regulated flexibility in the German redispatch mechanism, based on the experience acquired in the enera project. Non-regulated flexibility refers to the flexibility that is not covered by costbased congestion management in Germany recently reformed by the law for the acceleration of the grid extension1 (referred to as NABEG 2.0), such as demand-side flexibility and small-scale production assets. The goal is to provide system operators with a larger pool of flexibilities to improve overall congestion management efficiency.
The enera project is one of the projects of the SINTEG program. One of the key targets of enera has been to provide market-based congestion management services with decentralized installations, by trading locational ancillary services on local flexibility markets. The key achievements of the enera project in terms of flexibility markets relate to the new systems, processes and competencies which have been developed all along the project and put into operation. Besides a full-fledged operational trading platform, other systems and processes – such as a flex registry, a verification platform and a TSO-DSO coordination scheme – have been successfully developed. In addition to IT systems, an entire contractual framework (interactions and market processes) as well as a governance scheme (roles and responsibilities) have been established.
The Redispatch 2.0 mechanism, that is currently developed to implement the NABEG 2.0 regulation, is a regulated process which focuses mainly on power production assets of a certain size (referred hereafter as “regulated flexibilities”). Non-regulated flexibilities, in particular demand-side management but also production assets smaller than 100 kW that are not directly steerable by the system operators, are not covered. It is the perception of the authors of this paper that these nonregulated flexibilities are likely to play a key role in congestion management, as they may give access to a broader pool of flexibility to system operators, allowing efficient alleviation of local grid congestions.
The developments and experience achieved in the enera project can be used to for this purpose and enhance the upcoming German redispatch mechanism, integrating load flexibility and therewith reducing the overall redispatch costs.
Indeed, the upcoming German redispatch mechanism is mandatory for production and storage facilities larger than 100kW and is based on so-called “cost-based” compensations (where assets’ owners are compensated for the deviations against their schedules and should therefore be economically neutral towards the intervention). The mechanism is however not suited for load, notably due to the costbased remuneration scheme which is hardly applicable to load flexibility. This is mainly because setting a regulated compensation mechanism that properly captures the (opportunity) costs of consumption is very challenging and is unlikely to attract load on a voluntarily basis.
This is why this paper suggests a hybrid compensation model where, in addition to the cost-based compensation in place for regulated assets (i.e. production and storage assets larger than 100kW), load and small-scale production assets can submit flexibility bids at free prices and be remunerated accordingly in case of activation.
While the objective of this proposal is by no means to reopen the discussion on the compensation scheme for regulated assets, this hybrid compensation model is seen as a credible way forward to easily attract demand side flexibility. Further, the potential gaming opportunities in such a model remain limited: the free prices submitted by consumers are constantly put in competition with the regulated prices of the producers. This guarantees that non-regulated flex is only chosen if it is cheaper than regulated flex, and at the same time limits the gaming incentives for flex providers.
The possibility to realize the gains of this hybrid approach for non-regulated flexibilities depends on the adaption of the regulatory framework. The needed regulatory changes are straightforward and allow to reap the benefits of a larger pool of flexibilities:
- First, all market-based possibilities for the procurement of demand-side flexibility should be allowed, not only tender procedures via a common internet platform for all network operators as currently the case (revision of Åò13 (6) EnWG in connection with Åò14 (1) sentence 1 EnWG).
- Second, the incentive regulation (ARegV) needs to ensure that using marketbased demand-side flexibility falls under the same cost category as using costbased supply-side flexibility to create a level playing field and give system operators the most efficient incentives.
- Finally, further procedures for demand-side flexibility need to be defined and
approved, comparable to the ongoing Redispatch 2.0 project for regulated flexibility.
The implementation of the revisited German redispatch mechanism – and their related Redispatch 2.0 and Connect+ initiatives – is very challenging both technically and timewise. Instead of proposing any substantial change to this mechanism, the proposal made in this paper is to keep these processes untouched, at least at the beginning. Rather, the proposal is to complement these anticipated schemes on a voluntary and local basis as a no-regret measure, thanks to the existing enera developments. This would allow to confirm the key assumption of this paper – namely that well-located and competitive non-regulated flexibility can be harvested to alleviate local grid congestions – in a timely and cost-efficient manner.
Concretely, the idea is to allow each system operator (or group of system operators) accessing to yet untapped local flexibility, especially to non-regulated assets like demand side management. The Redispatch 2.0 mechanism provides each system operator with a set of flexibility activations stemming from the regulated pool of flexibility. A regulated cost is associated to each activation. With the proposed hybrid approach, the system operator can then substitute regulated assets by the ones available in his local flexibility market, provided these latter are located in the same geographical area and show better prices/costs (for the same grid effect) than the former. This ensures cost efficiency. Such local flexibility markets can be based on the enera platform, for which a full end-to-end environment has been designed, developed, tested and successfully demonstrated.
At a later stage, if the proposed approach proves successful, more integrated mechanisms (where load bids are directly considered in the redispatch mechanism as of the beginning of the process) can be considered. Such more unified processes would lead to further harmonization, lower transaction costs and potentially further efficiency gains in terms of redispatching. At this stage however, the proposal made in this paper is only to test the efficiency of demand side flexibility and other nonregulated flexibility in a relatively simple way, as a complement to the anticipated Redispatch 2.0 mechanism, before envisaging more advanced modifications of the overall German redispatch mechanism. To this end, changes in the regulatory framework are however required.