Europe’s electricity market ‘not fit for purpose’, finds report

Europe's electricity market
Finnish consultancy Poyry recommends heavily involving TSOs and DSOs in formulating regulatory policy to govern Europe’s electricity markets

In Europe, Finnish consultancy Poyry has this month released a new report ‘Building the modern electricity network: regulation and innovation’, which analyses the European electricity market.

The report details how “European electricity regulators and policymakers need to recognise that the electricity market value chain paradigm that underpins much of their policies and philosophy is no longer fit for purpose.”

Poyry findings state that the deployment of renewables and other small-scale generation at transmission and distribution levels, the growing use of small storage technologies, and demand side engagement are blurring the roles rol between generators and suppliers.

Europe’s 2020 targets

However, for European Union member states to reach the European Commission’s 2020 targets for carbon reduction, the study recommends regulatory reforms encouraging stakeholders to move beyond conventional asset-based solutions such as increasing networks’ regulatory asset base to allow for transformer upgrades.

Regulators, policymakers and transmission and distribution system operators (TSOs and DSOs) instead need to engage in delivering a strong, efficient low carbon system in the coming years, says Poyry.

TSOs and DSOs in electricity market

The report forecasts an increase in business models for energy storage, smart metering and demand side management being introduced as a result of advancements in technology.

Poyry claims that the majority of the models will likely be on the distribution systems, but will spill into transmission, and in any case there will be growing crossover between TSOs and DSOs operations.

The study suggests that TSOs and DNOs must play a part in drafting regulatory frameworks as understanding the highly technical issues of network stability and operations will challenge most regulators and policymakers.

Their participation would allow implementation of regulations avoiding encouraging TSOs and DNOs functionality or commercial participation on various stages of the market to allow distribution networks to become smart as in the case of the UK where the network price control RIIO focuses on “outputs” rather than simply reducing network cost.

The report also suggests:

  • Changes in distribution regulation structures;
  • Putting more responsibilities on DNOs to actively run their systems to reduce pressure on the transmission system; and fundamentally
  • Initiating structures that recognise system-wide and local value of assets regardless of where they are on the network.