The European Commission’s smart grid communication – and a reaction from the SEDC demand side community


Jessica Stromback,
Executive Director,
Smart Energy Demand
By Jessica Stromback, Executive Director, Smart Energy Demand Coalition

The SEDC(1)  is a representative European industry group of approximately 40 utilities, technology companies, and NGOs, initiated by eMeter and VaasaETT at the end of 2010 to promote demand side program development in Europe through education, network building and interaction with regulators. Demand side in this context is seen as the full range of “D3” capabilities: Demand reduction, Demand response, and control of prosumer Demand and distributed renewable generation production.   

Recently the European Commission released its April Communication outlining its current vision for smart grid development and the next steps. The Communication represents a review of high level objectives and a five step plan. This includes:

  1. Smart grids standards
  2. Data privacy/security
  3. Adjusting the existing smart grid regulatory framework by providing regulatory incentives for smart grid deployment
  4. Creating a competitive market for smart grid consumer services
  5. Taking actions to support innovation and rapid application of smart grid technologies.

The Communication made clear that an active functioning demand side market is central to the Commission’s smart grid vision. Demand response is named specifically; “Developing smart grids in a competitive retail market should encourage consumers to change behavior, become more active and adapt to new "smart" energy consumption patterns. This is a crucial precondition for the successful transition towards the efficiency-based business model… Demand response is at the core of the new model.”

European Energy Commissioner Oettinger also made strong claims for the central place of smart metering and residential feedback in his presentation of the Communication, stating that feedback can enable household electricity savings of 10% and that savings of up to 40% have been achieved. Overall therefore, the Communication and the Commissioner’s presentation offer strong indications of both the high expectations placed on demand side offerings to deliver increased efficiency and the Commission’s strong backing and support of such programs.  

Commercial and industrial (C&I) customer development
Unlike the U.S.A., in Europe much of the focus on demand side programs has been on residential consumers. This has a historical basis. Residential consumers have their meters read once a year and the remainder of the time they receive estimated electricity bills. An unpopular result is the occasional shockingly high electricity bill. A yearly actual bill also lowers residential consumer understanding of the connection between particular behavioral choices and their consumption as reality hits only some 12 months later. The Commission therefore sees a smart meter rollout and accurate monthly billing plus feedback as a central means of improving overall customer awareness and total energy efficiency. As a result, the majority of demand side R&D resources and legislation have been focused on residential consumers such as in-house displays, sensors and automated appliances.

It is important that residential consumers benefit directly from a smart grid rollout; however, C&I demand response programs can be equally effective in shifting load and usually have a more positive business case, because the C&I loads are so much higher than residential.  

To increase the level of information within the market, the SEDC will be writing a White Paper reviewing the potential of C&I demand response within Europe. Little research work has been carried out in this market – specifically on C&I demand response in Europe – but the potential is very large with industrial consumption alone at 40% of the total and with only minimal load shifting programs already in place. The value will only be increased due to the need to integrate high levels of wind and solar generation within certain markets, such as Denmark, Italy, Spain, and Portugal. The paper should be completed by September and will offer data on this emerging market and its overall potential within Europe.  

Creation of capacity markets?
The Communication suggests that strengthened retailer competition will encourage the creation of new demand side offerings throughout Europe. In a few markets, such as the U.K. and Ireland, where competition is relatively aggressive and switching rates are high, retailers are already using service offerings to attract new consumers and keep old. The Commission understands competition between electricity providers as a good means of ensuring consumers benefit within the future smart grid rollout.  

What has not been discussed in as much depth is the need to create wholesale market structures and/or capacity markets where energy savings or “Negawatts” can be sold at their real market value. At the moment electricity prices are flat for end consumers and do not reflect that wholesale market prices change frequently, as often as every half hour. The underdevelopment or nonexistence of dynamic pricing and appropriate market mechanisms for selling Negawatts into wholesale markets is currently a serious barrier for any company, or even utility, engaged in creating demand side products. It means that either a company may not have free access to the energy markets at all, or that they are unable to receive the real market price for the savings they create. This is slowly changing in some markets such as the U.K., France, and Germany, but even here the mechanisms will need to be refined and developed further in order to enable demand response to compete with electricity production on equal terms.

The SEDC Commercial & Industrial Demand Response White Paper will look to explore these issues further and research how changes in the regulation surrounding the sale of megawatts – particularly the availability and structure of markets for generation capacity – could enable the sale of Negawatts within the future European smart grid.

(1) SEDC members include: BPL Global, Capgemini, Cinterion, Delta, Digi International, DRSG, EDF, Electricity North West UK, Elektro Ljubljana, eMeter, Enel, Enernoc, Entelios, E.ON, ESMIG, Kisters, Honeywell, Instituto Tecnológico de la Energía, Johnson Controls Inc, Jouleassets, Landis+Gyr, NOERR, Orange, PLMA, Prolan, Pöyry, Schneider Electric, Siemens, Silver Spring Networks, Smart Power Grid Poland, Sustainability First, The Climate Group, The European Demand Response Research Center, United Technologies Research Center Ireland, VaasaETT, Vodafone, ZigBee Alliance