Several projects in the Market Design programme have been looking into the opportunities presented by modern communications technology. We have, for example, conducted a number of field trials to test tariffs, technologies and business models for greater customer flexibility. We have also looked at the regulations governing hourly metering and hourly balance settlement, as well as at the question of who should be the contact point for the end user: the network owner, the electricity supplier or, as today, both of them. Development in this area is rapid, and discussions concerning smart grids, large-scale introduction of electric vehicles, plug-in hybrids and large quantities of wind power mean that these matters are becoming increasingly relevant and important. At the same time, this also means that they are being discussed in several different research environments, and that coordination with other working areas is important. The contribution that the Market Design programme can make is to look at the various areas from a market point of view, i.e. investigating how the regulations should be constructed in order to enable the electricity market to operate as efficiently as possible.
Some of the hopes for the new technology are that consumers should be able to play a part in power system control, that the efficiency of energy use should be improved, and that the network companies should be able to operate their systems more efficiently and with greater security of supply.
Questions
3.1 What do “smart grids” mean in a Market Design perspective?
“Smart grids” is an umbrella name for the development that has now started of integrating local production, customer flexibility and advanced IT systems in local networks. Although this has major potentials, it also presents challenges, not least as far as drafting the necessary regulations is concerned.
3.2 How is the full potential of customer flexibility to be realised?
The value of flexibility will increase as time goes on. This will be expressed in the market in the form of more volatile prices on the spot market and greater price differences between the spot market and the real time market.
The introduction of monthly meter readings paves the way for simpler billing and better information to help consumers to monitor their electricity use. The next steps will be to develop new types of tariffs and to apply the new metering and communications systems to help consumers to control their electricity demand. Several benefits will accrue if better use can be made of the potential flexibility in the consumer collective than is made today. Security of supply will improve, the risk of substantial price swings will recede, the risk of producers with dominant market positions abusing their power in order to control prices will decline, and acceptance of wind power will increase.
Previous Market Design projects have presented a number of actions to facilitate hourly metering. Ways in which the regulations should be designed in order to assist favourable development must be under constant review, particularly in the perspective of continued Nordic and northern European harmonisation.
3.3 What changes to the regulations are needed in order to permit micro-production?
Widespread introduction of local small-scale electricity production presupposes that the networks can physically handle the production, and also that it can be credited in an acceptable manner.