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This publication is also available online in a web-accessible version at https://pub.norden.org/nordicenergyresearch2022-004
aFRR | Automatic Frequency Restoration Reserve |
BRP | Balance Responsible Party |
BSP | Balancing Service Provider |
CRM | Capacity remuneration mechanism |
C&I | Commercial and Industrial |
DA | Day-ahead |
DER | Distributed energy resources |
DR | Demand response |
DSO | Distribution System Operator |
ENA | Energy Networks Association |
ESO | Electricity system operator |
EV | Electric vehicle |
FCR | Frequency Containment Reserve |
FFR | Fast Frequency Reserve |
GB | Great Britain |
ID | Intraday |
ISP | Imbalance Settlement Period |
ISR | Imbalance Settlement Responsible |
MBMA | Meter before meter after |
mFRR | Manual Frequency Restoration Reserve |
RES | Renewable Energy Sources |
RR | Replacement reserve |
ToE | Transfer of Energy |
ToU | Time of Use |
TSO | Transmission System Operator |
USEF | Universal Smart Energy Framework |
The Nordic region is looking into the Electricity Market Directive (2019/944) requirements to enable demand side flexibility participation. The Directive lays out requirements and suggestions (“may”) on how market participants engaged in aggregation and independent aggregation should be integrated into the electricity market, especially in Article 17. On behalf of the Electricity Market Group (EMG) under the Nordic Council of Ministers, Nordic Energy Research (NER) commissioned DNV to review how independent aggregation is (or will be) regulated in other European countries in different markets, with an emphasis on how the compensation mechanism is designed.
The objectives of this study are to:
As part of this study, DNV has performed a desk study that has been complemented by interviews with several aggregators and with several national regulatory authorities. The selected European countries were Belgium, Finland, France, Germany, Great Britain, the Netherlands, and Switzerland.
The study describes the independent aggregator models that are found across Europe – uncorrected, central settlement and corrected models – and how they are implemented in the selected countries. The table below summarizes the models across the different services.
FCR | aFRR | mFRR (& RR) | Wholesale | Capacity market | |
Belgium | Uncorrected | Corrected (limited applicability) | Corrected (limited applicability) Central settlement | Available from 2021: Corrected (limited applicability) Central settlement | Corrected (only applicable when customer nominates their energy schedule) Central settlement |
Finland | Uncorrected (FCR-D and FFR) Central settlement (FCR-N) | N/A | Central settlement model was piloted | N/A | N/A |
France | Uncorrected | Uncorrected | Corrected Central settlement | Corrected Central settlement | Corrected Central settlement |
Germany | Uncorrected | Corrected | Corrected | N/A | N/A |
Great Britain | Uncorrected or central settlement | Central settlement* | Central settlement* | Central settlement under discussion for future implementation | Uncorrected |
Netherlands | Uncorrected | Plan to implement central settlement | Plan to implement central settlement | N/A | N/A |
Switzerland | Uncorrected | Central settlement | Central settlement | N/A | N/A |
Table 1. Independent aggregator models per country
Although the energy market context, as well as the timing and triggers for implementing a regulatory framework for independent aggregation, differs from country to country, many similarities on the design principles can be observed, that are also applicable to the Nordics:
Given these strong similarities in principles, we conclude that experiences and best practices from other countries are relevant to consider. At the same time, experiences in the residential sector specifically, and to a lesser extent, wholesale trading, are very limited. Although the principles are similar, there are also differences between the countries when it comes to independent aggregator framework design choices. This is summarised in the following table.
Strong similarities | Limited differences | Substantial differences |
Aggregation model | Level of compensation | IT systems to facilitate independent aggregation |
Use of uncorrected model | Access to wholesale markets | |
Rebound | Balance responsibility |
Table 2. Differences in design choices per topic
We observe similarities or limited differences in the following aspects:
When analysing areas with limited to large differences – compensation, access to wholesale markets, balance responsibility, and IT systems – the study shows that most of the causes that have led to different design choices are not applicable to the Nordics. A key take-away is that to harmonise the Nordic approach, it is important is to agree on certain common design principles:
De nordiske regulatorene for energi ser for tiden nærmere på kravene i elmarkedsdirektivet (2019/944) for å legge til rette for fleksibilitet på etterspørselssiden og spesielt deltakelse av aggregert forbruk og produksjon. Direktivet fastsetter blant annet krav og forslag («kan») til hvordan markedsaktører som driver med aggregering og uavhengig aggregering skal delta i elektrisitetsmarkedet, spesielt i artikkel 17. På vegne av Elmarkedsgruppen (EMG) under Nordisk Ministerråd ga Nordisk Energiforskning (NER) DNV i oppdrag å gjennomgå hvordan uavhengig aggregering er regulert i andre europeiske land, med spesiell vekt på hvordan kompensasjonsmekanismen er utformet.
Målet med denne studien er å:
Som en del av denne studien har DNV gjennomført intervjuer med en rekke aggregatorer og flere europeiske regulatorer. De utvalgte landene er Belgia, Finland, Frankrike, Tyskland, Storbritannia, Nederland og Sveits.
Studien beskriver de ulike modellene for uavhengige aggregatorer som finnes over hele Europa – korrigert (uncorrected), sentral avregning (central settlement) og korrigert (corrected) – og hvordan de er innført i forskjellige land. Tabellen nedenfor oppsummerer modellene som benyttes for de forskjellige tjenestene.
FCR | aFRR | mFRR (& RR) | Engros-markedet | Kapasitets- markeder | |
Belgia | Ukorrigert | Korrigert (begrenset omfang) | Korrigert (begrenset omfang) Sentral avregning | Korrigert (begrenset omfang) Sentral avregning | Korrigert (begrenset omfang) Sentral avregning |
Finland | Ukorrigert (FCR-D og FFR) Sentral avregning (FCR-N) | N/A | Sentral avregning er testet i pilot | N/A | N/A |
Frankrike | Ukorrigert | Ukorrigert | Korrigert Sentral avregning | Korrigert Sentral avregning | Korrigert Sentral avregning |
Tyskland | Ukorrigert | Korrigert | Korrigert | N/A | N/A |
Storbritannia | Ukorrigert eller sentral avregning | Sentral avregning | Sentral avregning | Sentral avregning vurderes | Ukorrigert |
Nederland | Ukorrigert | Planlegger sentral avregning | Planlegger sentral avregning | N/A | N/A |
Sveits | Ukorrigert | Sentral avregning | Sentral avregning | N/A | N/A |
Tabell 1. Modeller for aggregering i ulike land
Selv om både konteksten, tidspunktet og utløsende faktorer for å utvikle et regulatorisk rammeverk for uavhengig aggregering er forskjellig fra land til land, er det mange prinsipielle likheter. Dette gjelder også for Norden:
Gitt disse sterke prinsipielle likhetene, konkluderer vi med at erfaringer og beste praksis fra andre land er relevante for Norden. Samtidig er erfaringene svært begrensede, spesielt innenfor alminnelig forsyning, og i noen grad innenfor engroshandel.
Selv om prinsippene er like, er det også forskjeller mellom landene når det gjelder design av rammeverket for uavhengige aggregatorer. Dette er oppsummert i tabellen nedenfor.
Sterke likhetstrekk | Begrensede forskjeller | Store forskjeller |
Aggregator-modell | Nivå på kompensasjon | System og rutiner for å legge til rette for uavhengig aggregatorer |
Bruk av ukorrigert modell | Tilgang til engrosmarkeder | |
Rebound-effekt | Balanseansvar |
Table 2. Likhetstrekk og forskjeller i designvalg
Vi observerer likheter mindre forskjeller for disse aspektene:
Ser vi på tema med mindre til større forskjeller – kompensasjon, tilgang til engrosmarkedet, balanseansvar og IT-systemer – viser studien at de fleste årsakene som har ført til ulike designvalg ikke er relevante for Norden. Med tanke på nordisk harmonisering, ser det ut til å være viktigere å bli enige om felles prinsipper for design:
DNV was commissioned to perform this study by Nordic Energy Research (NER) on behalf of the Electricity Market Group (EMG) under the Nordic Council of Ministers.
Andrea Stengel at Nordic Energy Research was the coordinator of the project.
Team at DNV
Aurora Sáez Armenteros, Project manager, Senior consultant, aurora.saez@dnv.com
Hans de Heer, Principal consultant, hans.deheer@dnv.com
Jørgen Bjørndalen, Principal consultant, jorgen.bjorndalen@dnv.com
Lars Johan Karlbom, Senior consultant, lars.johan.karlbom@dnv.com
Steering group
The study was supervised and guided by the representatives from the ministries: Tatu Pahkala and Elina Hautakangas at the Ministry of Economic Affairs and Employment in Finland, Johnny Lindstrom at the Government of Åland; Pär Lyden and Fredrik Norlund at the Ministry of Infrastructure, Mia Frydensberg Ravn, Peter Olsen and Peter Sølvsten at the Danish Energy Agency, Ane Hammer Langhelle, Laila Berge and Kaja Malene Remme at the Norwegian Ministry of Petroleum and Energy.
Stakeholder input
We express our gratitude to the organisations that have provided valuable input to this report: Aggregators (EnelX, Entelios, Flexcity, Nextkraftwerke, Tiko, Voltalis and various aggregators that wished to remain anonymous), national regulatory agencies (ACM, BNetZA, CRE, and Ofgem), transmission system operators (Fingrid) and imbalance settlement responsible parties (ELEXON).
The individuals and organizations that contributed to this study are not responsible for any opinions or judgements contained herein.
Contact
Comments and questions are welcome and should be addressed to: Aurora Sáez Armenteros, e-mail: aurora.saez@dnv.com
For inquiries regarding the presentation of results or distribution of the report, please contact Nordic Energy Research.
Additional materials, press coverage, presentations etc. can be found at www.nordicenergy.org
The Nordic region is looking into the Electricity Market Directive (2019/944) requirements to enable demand side participation. The Directive also lays out requirements and suggestions (“may”) on how market participants engaged in aggregation and independent aggregation should be integrated into the electricity market, especially in Article 17.
On behalf of the Electricity Market Group (EMG), Nordic Energy Research (NER) commissioned DNV to review how independent aggregation is regulated in other European countries in different markets, with an emphasis on how the compensation mechanism is designed.
EMG is a working group under the Nordic Council of Ministers and consists of experts from the Ministries and energy authorities of Denmark, Finland, Norway and Sweden. Nordic Energy Research (NER) is an intergovernmental institution for cooperative energy research and policy development under the auspices of the Nordic Council of Ministers (NCM). NER facilitates and funds research, development and analysis to promote a sustainable future and contribute to Nordic policy making and cooperation within the field of energy. The Nordic Council of Ministers is funding this project.
The objectives of this study are to:
As part of this study, DNV has performed a desk study that has been complemented by interviews with several aggregators and with several European regulators.
This report is structured as follows:
In this section, we first present the key concepts that characterise an aggregator model. This is followed by the description of the different aggregator implementation models identified by the USEF framework. The purpose of this section is to set the basis for the terminology used throughout the report.
The USEF foundation describes four key attributes of the aggregator-supplier relationship that are essential to describe an aggregator model. These concepts are: contractual relationship, balance responsibility, sourcing position and information exchange.
Contractual relationship
This concept refers to the contractual relationship between aggregator and the supplier, or between aggregator and the Balance Responsible Party of the supplier (BRPsup). The contractual relationship is key to identifying whether the aggregator model can be considered independent. The aggregator is performing independent aggregation for a certain customer when there is no contractual relationship between the aggregator and this customer’s supplier or BRPsup.
Balance responsibility
The balance responsibility concept defines the balance responsibility requirements for the aggregator, often in relation to the supplier. The aggregator, as an active market participant, can cause imbalances in the system with their actions, therefore the aggregator model should define who is responsible for the imbalances and how it is arranged.
Sourcing position
The sourcing position of a supplier represents the balance between the energy sold to retail customers and energy sourced in the energy market. When an aggregator activates flexibility from a customer, the sourcing position of the supplier will be impacted, by either preventing sourced energy to be sold or by triggering energy to be sold that has not been sourced. A similar concept applies to the aggregator role; to be able to sell energy (especially on wholesale markets), the aggregator must source it (dispaching a flexible asset at a customer will, by itsef, not change the Aggregator’s position). The customer’s supplier is the only logical party to source this energy from. The act of sourcing and selling energy between aggregator and supplier is the so-called ‘transfer of energy’ (ToE).[1]Note that the term of transfer of energy is not used in France as established inappropriate by a decision from the upper court, thus leading to this notion being abandoned in French law. Instead, the French law uses a financial compensation. The aggregator model should define the mechanism to correct the sourcing position, its price, and the settlement mechanism.
Please note that supplier compensation / ToE, depending on how it is implemented, often corrects both the balancing position and the open sourcing position at the same time. Since the balancing position relates to the BRP role and the sourcing position to the Supplier role, USEF treats these aspects separately, even though the Supplier and BRP role are often combined into a single market participant.
Information exchange and confidentiality
This aspect covers the requirement for aggregators regarding information exchange with other market parties such as BRP, supplier, imbalance settlement responsible (ISR), system operators, amongst others. Next to information exchange, confidentiality is a key aspect since it can have an impact on establishing a level playing field.
Although this study focuses on independent aggregator models, it is relevant to present the overview of non-independent aggregator models given that they are already present in the European landscape and are an alternative to independent aggregation.
Integrated model: The supplier and the aggregator roles are combined within a single market party.
Broker model: The aggregator is in charge of operating the flexibility with the supplier’s portfolio and the supplier-aggregator relationship is governed by an agreement. The aggregators do not perform the BRP role itself, but agree bilaterally with the supplier’s BRP how any imbalances caused by the aggregator are compensated.
Contractual model: The aggregator and the supplier are two different market parties with their own BRP. The aggregator holds balance responsibility during flexibility activation, potentially limited to flexible asset(s), and the supplier remains balance responsible for the connection. After a flexibility activation, supplier and aggregator trade the sourced/sold energy at the price specified in their contract.
Contractual relationship | Balance responsibility | Sourcing position | Information exchange & confidentiality | |
Integrated | Both roles performed by single market party, therefore there is no contract needed. | There is only one BRP, and it represents supplier and aggregator. | This aspect is not applicable because they are a combined market party. | This aspect is not applicable because both roles are combined. |
Broker | Bilateral contract between aggregator and supplier that also covers the impact of imbalances. | There is only one BRP which is the supplier’s BRP. | This aspect is handled bilaterally. There could be an impact on the sourcing position, financial compensation (can be both ways) are agreed in the contract. | This is arranged bilaterally between supplier and aggregator. The minimum information exchange should be the volumes that were activated by the aggregator. |
Contractual | Contract between the aggregator and supplier. The contract should specify information exchange, sourcing mechanism and price. | There are two BRPs, the supplier’s and the aggregator’s. The aggregator’s BRP only has balance responsibility of the flexible assets during activation, for the activated volume. | Aggregator and supplier trade the sourced/sold energy bilaterally, ex-post activation, using the terms in their contract. | This is arranged bilaterally between supplier and aggregator. The minimum information exchange should be the volumes that were activated by the aggregator. |
Table 3. Summary of non-independent aggregator models key aspects
As per the USEF aggregator implementation model classification, the models that do not require a contractual relationship between aggregator and supplier are the uncorrected, the central settlement and the corrected model.
Balance responsibility
When applying the uncorrected model, the aggregator does not hold balance responsibility or financial responsibility for the imbalances caused in the system when activating flexibility. The perimeter (i.e. portfolio) of the supplier’s BRP might be in imbalance after flexibility activation and the imbalance is not corrected by the system operator or imbalance settlement responsible (ISR). When this model is applied in balancing or adequacy services, the flexibility activation will most likely help the system balance, which will then count as passive imbalance contribution by the supplier’s BRP. Due to the passive balance contribution, the BRP might be remunerated as part of the imbalance settlement mechanism.[1]This is only applicable when the imbalance settlement mechanism is based on single imbalance pricing.
Sourcing position
The sourcing position is not directly balanced by this mechanism. However, if the passive balance contribution is remunerated through the imbalance settlement mechanism, the supplier’s BRP will be remunerated implicitly for the energy sourced, at the imbalance price.
Information exchange & confidentiality
There is no need for any information exchange apart from the information exchange required to participate in markets or services. The supplier does not receive any communication that discloses the presence of an aggregator. However, that does not remove the possibility of the supplier finding out through analysing the behaviour of their customers via the metering data.
Balance responsibility
When applying this model, the aggregator is balance responsible or financially responsible for the imbalances that they may cause during flexibility activation of their flexible assets. Next to being responsible during the flexibility activation, some models may also consider that the aggregator is also responsible for the rebound effect[1]For rebound effect we use the definition of the phenomenon that the load reduction (or increase) triggered by a demand response event, is compensated partly or fully outside the activation period or by other resources. caused by the flexibility activation, which is typically outside the activation window.
Since the flexibility activation will be seen as an imbalance in the perimeter of the supplier’s BRP, a central entity (such as a system operator or ISR) corrects the supplier’s BRP perimeter by deducting or adding the deviation caused by the aggregator. This is also known as imbalance adjustment.
Sourcing position
The central settlement model facilitates the transfer of energy through a central entity, system operator or ISR. The price level of the transfer of energy is regulated by the National Regulatory Authority. Under this arrangement, the aggregator would pay for the sourced energy, at the ToE price, to the central entity and the central entity would transfer it to the supplier. In case of load enhancement or generation reduction, both energy and payment will flow in the opposite direction.
When the sourced energy is not compensated by the aggregator but by society or other entities that are benefitting by the flexibility activation, the central settlement model becomes the net benefit model.
Information exchange & confidentiality
The central entity determines the activated volume per ISP for each aggregator, often based on information provided by the aggregator, such as (sub) meter data and activated assets / customers. The central entity does not disclose the customers of the aggregator, nor the aggregator to the supplier, as this can impact the level playing field. The supplier is informed about the total amount of flexibility (energy) that has been activated within its portfolio, per ISP.
Balance responsibility
Like for the central settlement model, when applying the corrected model, the aggregator is balance responsible or financially responsible for the imbalances that they may cause during flexibility activation of their flexible assets. Next to being responsible during the flexibility activation, some models may also consider that the aggregator is also responsible for the rebound effect[1]For the rebound effect we use the definition of the phenomenon that the load reduction (or increase) triggered by a demand response event, is compensated partly or fully outside the activation period. caused due to flexibility activation, which is typically outside the activation window.
There are two variations to this model:
For both types, the perimeters of the Aggregator’s BRP are corrected by the central entity, if the aggregator holds formal balance responsibility.
Sourcing position
The principle of this model is that the transfer of energy goes through the customer. The supplier bills the customer as if the flexibility was not activated and the aggregator compensates the customer to cover for the energy that was billed but not consumed (i.e. transfer of energy) at the retail price. However, there are differences when applying the different sub-models:
For applying this model, the calculation of taxes and network tariffs should be based on the actual consumption, not on the corrected meter values.
Information exchange
The information exchange requirements also vary per sub-model:
In this chapter we present the experience of seven European countries – Belgium, Finland, France, Germany, Great Britain, Netherlands, and Switzerland – on the implementation of the (independent) aggregator framework. First, we present the general energy landscape context of the different countries. Then we present the model choices, aggregator models and the details of it, per sector. The sector division is relevant because there are fundamental differences in demand response characteristics and progress on aggregator frameworks between sectors. Subsequently, we lay out the considerations of the country regulators when designing the regulatory framework. Lastly, we touch upon the deployment experience of the aggregator framework by aggregators, what are the barriers they perceive, their incentives and feasible business models, among other aspects.
The selected countries were chosen on the basis of having more advanced regulation for independent aggregators and/or relatively significant demand response participation in services and markets.
Certain elements of the energy landscape context of each country are key to understanding the aggregator implementation choices that are set by regulation. As such, this context will serve to identify the lessons that can be applied to the Nordic countries in later chapters.
Figure 1. Generation mix 2020 – Belgium[1]https://www.iea.org/
Figure 2. Electricity bill breakdown – Belgium[1]https://www.creg.be/sites/default/filesassets/Prices/Kerncijfers/Kerncijfers2020.pdf
Figure 3. Generation mix 2020 – Finland[1]https://www.iea.org/
Figure 6. Electricity bill breakdown – France[1]https://prix-elec.com/tarifs/electricite/decomposition
Figure 7. Generation mix 2020 – Germany[1]https://www.iea.org/
Figure 8. Electricity bill breakdown – Germany[1]Monitoring report 2020 –Key findings and summary (bundesnetzagentur.de)
Figure 9. Generation mix 2020 – UK[1]https://www.iea.org/
Figure 10. Electricity bill breakdown 2020 – UK[1] http://powerresponsive.com/wp-content/uploads/2021/04/NG_MEUC-book-2021.pdf
Figure 11. Generation mix 2020 – Netherlands[1]https://www.iea.org/
Figure 12. Electricity bill breakdown 2020 – Netherlands[1]https://www.tennet.eu/e-insights/regulation-of-the-electricity-price/dutch-regulation/
Figure 13. Generation mix 2020 – Switzerland[1]https://www.iea.org/
Figure 14. Electricity bill breakdown 2020 – Switzerland[1]https://www.swissgrid.ch/en/home/about-us/company/electricity-price.html
In Belgium, the independent aggregator framework is relatively advanced, independent aggregators can participate in all markets, although with certain limitations. All independent aggregator models described in section 2 are implemented in Belgium for different products.
The uncorrected model is applicable for the FCR product, this is due to the fact that FCR is a symmetrical product, does not have energy payments, and has low energy impact at the perimeter of supplier’s BRP. The BSP (independent aggregator) is remunerated with the capacity payment.
For mFRR, wholesale and the capacity remuneration mechanism, there are three different options. The first option, and what regulation dictates to be a necessary step, is the ‘opt-out option’ or contractual model – aggregator and supplier need to engage in negotiations to try to reach an agreement. If both parties cannot reach an agreement, the fall-back option is the central settlement model.
The central settlement model is implemented as described in section 1.3.3, the independent aggregator needs to either perform the BRP role or assign it to cover the balance responsibility of the flexibility during activations. Elia corrects the perimeter of the supplier’s BRP and organises the transfer of energy (ToE) centrally, against a regulated price.
Alternatively, there is an option that can be implemented without the need to go through negotiations with a supplier, which are referred to as ‘pass-through contracts’. This option is only available for large industrial customers that have their own balance responsibility or send schedules with the planned consumption to their supplier. The principle is that the flexibility activation does not affect the supplier since the customer is charged against their nomination and pay the deviation of their nomination at the imbalance price. When there is a flexibility activation, the aggregator would remunerate the customer for the use of their flexibility and for the extra costs charged by the supplier. This model can be mapped as a sort of corrected model, because the transfer of energy goes through the customer.
For the aFRR product, only the contractual and ‘pass-through’ or corrected models are available.
In Finland two models are in place – uncorrected and central settlement – based on the service type. The uncorrected model is applicable for the FCR-D and Fast Frequency Reserve (FFR) products, and like in Belgium, the supplier’s BRP would be remunerated through the imbalance mechanism. For FCR-N and the mFRR pilot, Fingrid applies the central settlement model. The difference in the model used for FCR-D and FCR-N is due to the differences of both products. FCR-N activates significant amounts of energy, which causes a bigger impact on the portfolio of the supplier’s BRP.
Fingrid implements slightly different variations of the central settlement model for each service. For FCR-N, Fingrid corrects the perimeter of the supplier’s BRP when flexibility is activated. Although the aggregator is financially responsible for the imbalance they may cause, they do not need to assign a BRP role. Fingrid facilitates the transfer of energy centrally: a transaction is made for balancing energy between Fingrid and the balance responsible party of the supplier’s BRP at a price set by the balancing market in the imbalance settlement. If balancing energy is provided upwards then Fingrid pays and if balancing energy is provided downwards, then Fingrid charges. The aggregator receives the capacity payment. This mechanism can be considered as a central settlement model with the ToE price set at the balancing prices; as a result, any margin on the balancing prices end up with the supplier, rather than the independent aggregator.
During the mFRR pilot, Fingrid applied the central settlement model as described in section 1.3.3, however, the results and experiences of the pilot were deemed insufficient to draw many conclusions on the model.
In France, like in Belgium, we find the four models: uncorrected, central settlement, corrected and contractual. The uncorrected model is applied for the FCR and aFRR products, although for the latter there is hardly any participation since DSR can only participate through a secondary market. For the other services – mFRR, RR, capacity market and day-ahead and intraday trading – the other three models are applicable, but the choice is limited by the connection characteristics. If the connection is above 36 kV and has a specific type of contract,[1]The customer must be settled for energy and network fees separately. The reason for this is because the correction should only apply to the energy contract, the network fees should always reflect the real consumption/generation. the corrected model is the only option, whereas for connections below 36 kV, the model can be either central settlement or corrected (type A).
In terms of balancing responsibility there is a difference between the balancing mechanism and wholesale. The aggregator active in wholesale, needs to assign a BRP that covers the balance responsibility of the flexible resources during activation. This is not the case for the balancing mechanism where the aggregator acts as a ‘floating BSP’ that is financially responsible for the imbalances they cause in the system. Finally, it is important to note that the French regulation only considers demand turn-down (generation enhancement) as demand response, i.e. demand turn-up or generation turn down is not considered / facilitated.
In Germany there are two applicable models – uncorrected and corrected. The uncorrected model is applicable for the FCR product. For mFRR and aFRR, there is a corrected model in place since 2021. The German implementation of the corrected model is closer to the ‘type B’ described in section 1.3.3. After a flexibility activation, the aggregator exchanges schedules with the supplier’s BRP so they correct their perimeter. Any imbalance resulting after the schedule exchange will remain in the supplier’s BRP perimeter, hence no imbalance remains in the aggregator’s perimeter. The supplier can then correct the energy bill to charge the customer as if no flexibility activation happened. Moreover, to enter this framework, aggregators must have a BRP certificate and negotiate with the supplier’s BRP to determine the conditions for the schedule exchanges.[2]https://www.bne-online.de/fileadmin/bne/Dokumente/Englisch/Policy_Papers/BNetzA_BK6_17_046_Beschluss_vom_14_09_2017.pdf
In Great Britain we find two models – uncorrected and another model that could be mapped as either central settlement or corrected depending on the circumstances. The uncorrected model is applied in balancing products, such as FCR (which participates outside the balancing mechanism[3]The balancing mechanism (BM) is one of the mechanisms that National Grid ESO uses to balance the system close to real time. The BM is based on a bid-offer mechanism.) and the capacity mechanism. For the Balancing Mechanism and RR, the second model applies. To participate in those services, the aggregator needs to register as a virtual lead party (VLP) which is essentially equivalent to a BSP role. The VLP nominates the flexibility activated in the supplier’s portfolio ex-post activation[4]The validity of this information is based on trust and ELEXON[5]ELEXON is the imbalance settlement responsible party in Great Britain corrects the perimeter of the affected BRPs. In case of under-delivery, the VLPs would incur imbalance costs (including an extra penalty if the imbalance cost is considered too low), however, for over-delivery the VLPs are not exposed to imbalance pricing.[6]https://www.elexon.co.uk/documents/training-guidance/bsc-guidance-notes/virtual-lead-party-vlp-entering-the-market/#:~:text=A%20VLP%20is%20a%20distinct,to%20trade%20in%20wholesale%20markets The compensation aspect is designed around customer consent. If the customer consents that their activation data can be shared with the supplier, ELEXON would share the activation volumes with the supplier and thus the supplier could include it as a separate specification to charge the customer for the transfer of energy. This interpretation corresponds to the corrected model (type B). On the other hand, if the customer opts out of the data sharing, ELEXON would not share any activated volumes with the supplier leaving no option for them to charge compensation. This option could be mapped as a central settlement model with no compensation, i.e. transfer of energy price set at 0. According to ELEXON, they have no knowledge of any supplier that makes use of the activated volumes to charge compensation. Therefore, the closest model that represents the British situation is central settlement.
The access of VLPs to wholesale market is at the early proposal stage and they are considering the same model as they have implemented for the balancing mechanism (i.e. central settlement) although the details are not clear yet.[7]https://www.elexon.co.uk/mod-proposal/p415/
In the Netherlands we find the same models – uncorrected and central settlement. The uncorrected model, as for the rest of the countries, applies to the FCR product, whereas the central settlement model is considered for aFRR and mFRR but not fully implemented yet. The new energy law proposal in the Netherlands prepares for a central settlement model[8]Exact model will be specified by lower legislation, yet the NRA has indicated that the central settlement model is the likely direction of travel to facilitate independent aggregation. Currently, TenneT corrects the BRP perimeter after flexibility activations with the portfolio allocation data that the aggregator shares ex-post with TenneT. However, it is still required for the “independent” aggregator (BSP) to coordinate or make arrangements with the customer’s usual supplier. This is foreseen to change in the future when the full central settlement model is implemented.
Finally, in Switzerland, we also find the same models – uncorrected and central settlement. Again, uncorrected is applicable for FCR whereas central settlement applies to aFRR and mFRR. To participate in these markets the aggregator must be a BSP, but not a BRP. Yet, the aggregator will face imbalance charges if they disturb the system balance.
The table below summarises the different models per country against the most common services/markets. From the table we can observe that the uncorrected and central settlement are the most common independent aggregator models that are implemented or planned to be implemented across the selected countries.
FCR | aFRR | mFRR & RR | Wholesale | Capacity market | |
Belgium | Uncorrected | Contractual Corrected (only applicable when customer nominates their energy schedule) | Contractual Corrected (only applicable when customer nominates their energy schedule) Central settlement | Available from 2021: Contractual Corrected (only applicable when customer nominates their energy schedule) Central settlement | Contractual Corrected (only applicable when customer nominates their energy schedule) Central settlement |
Finland | Uncorrected (FCR-D and FFR) Central settlement (FCR-N) | n.a. | Central settlement model was piloted | n.a. | n.a. |
France | Uncorrected | Uncorrected | Corrected Central settlement Contractual (only applicable for connections where central settlement is applicable) | Corrected Central settlement Contractual (only applicable for connections where central settlement is applicable) | Corrected Central settlement Contractual (only applicable for connections where central settlement is applicable) |
Germany | Uncorrected | Corrected | Corrected | n.a. | n.a. |
Great Britain | Uncorrected or Central settlement | Central settlement* | Central settlement* | Central settlement under discussion for future implementation | Capacity market: Uncorrected Wholesale: n.a. |
Netherlands | Uncorrected | Plan to implement Central settlement | Plan to implement Central settlement | Contractual | n.a. |
Switzerland | Uncorrected | Central settlement | Central settlement | n.a. | n.a. |
Table 4. Aggregator models per country
The balance responsibility of independent aggregators is implemented in different ways in each country and product.
In general, for trading DSR in the intraday (ID) and day-ahead (DA) markets, independent aggregators need to assign or perform the BRP role. This is the case in France and Belgium, the only two countries that have opened access to the wholesale market to independent aggregators. The independent aggregator’s BRP (BRPagr) does not have the same status as the supplier’s BRP (BRPsup). Whereas the BRPsup represents and is responsible for the customer connection at all times, the BRPagr is only responsible for the system imbalances that the flexibility activations may cause, and therefore resembles a trading-only BRP.
How that works in practice is quite complex, for illustration purposes, we will take the Belgian example for transfer of energy applying central settlement in wholesale[1]https://www.elia.be/-/media/project/elia/elia-site/electricity-market-and-system---document-library/transfer-of-energy/2020/2020_07_design_note_toe_da_id.pdf:
When applying the corrected model (type A) in France, the BRP implementation is similar, except for the correction aspect. The correction takes place at the meter data, therefore RTE (the French TSO) does not need to perform any perimeter correction on BRPsup’s portfolio. It still needs to perform the perimeter correction on the BRPagr’s portfolio.
For balancing services, there are different approaches to balance responsibility:
The table below summarises the implementation of balance responsibility for independent aggregators. Note that for the models where aggregators need to assign a BRP, the aggregator is only balance responsible for moments when flexibility activation occurs, and only for the flexible part (deviations from the baseline). For the rest of the time, the balance responsibility is held by the supplier’s BRP, and during the activation, for sourcing the baseline.
Balancing services | Wholesale & Adequacy | |
Belgium | Independent aggregators are BSPs and need to be/assign a BRP, except for FCR. | Independent aggregator needs to be/assign a BRP |
Finland | Independent aggregators are BSPs and they have no need to be or assign BRP for participating in FCR-D, FCR-N or FFR. For the mFRR pilot the ind. aggregator had to assign BRP. | N/A |
France | Independent aggregators in balancing markets are considered “floating BSPs” and are exposed to imbalance prices, but they are not a BRP. | Independent aggregator needs to be/assign a BRP |
Germany | Independent aggregators are BSPs and do not need to assign a BRP. However, they need a BRP certificate, issued by the customer’s BRP. | N/A |
Great Britain | VLP are equivalent to BSPs, they do not have the BRP role. They are exposed to penalties (at least the imbalance price) for underdelivery but they are not exposed to imbalance prices for overdelivery. | No need for BRP to participate in the capacity market |
Netherlands | Independent aggregators or independent BSPs do not need to be/assign BRPs. They get penalised as part of the product specifications. | N/A |
Switzerland | Independent aggregators are BSPs. They bare financial responsibility for imbalances as part of the service delivery, but they do not need to be or assign a BRP. | N/A |
Table 5. Balance responsibility for independent aggregators per country
In Great Britain, if the customer consents to sharing their data, the supplier could charge the consumer for the flexibility through a different specification, and the aggregator would compensate the consumer. If the customer does not consent to sharing the data, there is currently no compensation between aggregator and supplier. This corresponds to a transfer of energy price set to 0, i.e. the aggregator does not pay for the sourced energy to the supplier. This is likely to change in the future, especially due to the discussion of opening the wholesale market to VLPs. The initial proposals suggests that the compensation between aggregator and supplier should be considered.
In Switzerland the compensation between aggregator and supplier is organised through the transfer of energy payment. Swissgrid settles the transfer of energy centrally for the volume of flexibility delivered at the day-ahead spot price for the time of activation. In Finland the same principle has been applied for the mFRR pilot, whereas for the FCR-N, the transfer of energy price is set at the balancing price.
In Germany, the aggregator compensates the supplier through the customer at the retail price level for the sourced energy. Next to the retail price, the aggregator may compensate the supplier’s BRP to cover the administration costs for schedule exchanges, it is up to the BRP (in negotiations with the aggregator) to set the price.
The Belgian models, like the Swiss and Finnish, only requires compensation for the transfer of energy. When the corrected model is applicable, the transfer of energy price is set at the retail energy price. However, when the central settlement model applies, the settlement is arranged centrally by Elia, and the transfer of energy price is set by a formula. This formula was created by the regulator and is based on the following principles:[1]B1677FR.pdf (creg.be)
These principles resulted in the following formula:
ToE price={[73 %× 1/3 (Cal Y+2 + Cal Y+1 + M+1) + 27 % EPEX spot BE DAM] × 1,05} +/- 5 %
With:
The French model shares the same compensation principles with Belgium, except for the ToE price formula. The formula attempts to reflect the average sourcing cost for electricity and differentiates between two types of sites: profiled and half-hourly settled sites. The latter category is the relevant one for industry and commercial. Unlike the Belgian approach, RTE publishes the prices for the coming year in the preceding month of December and the prices are fixed with a time of use component (peak/off-peak) and season (winter/summer). The price formula only considers future market prices (for Cal Y+1 and Cal Y+2) and ARENH price (Regulated access to historic nuclear energy). Moreover, to consider the arbitrage between future markets and ARENH, there are two different formulas. The comparison between ARENH and average future market prices, determines the formula to be used each year. The complete formula can be found in NEBEF rules 3.3.[2]2021.01 Rapport d'accompagnement Règles NEBEF 3.3.pdf (services-rte.com) According to CRE, market parties have expressed their concern that the formula does not include capacity mechanism prices. CRE has indicated that they are updating the formula to include those prices from 2023.
In the table below we summarise the compensation between aggregator and supplier for each country.
Compensation | |
Belgium | Price level for the transfer of energy is (an approximation of) the retail price. - Corrected model: ToE is price is equal to the energy part of the retail contract and imbalance prices. Network fees and taxes are charged for the actual consumption. - Central settlement model: ToE price is calculated with a formula set by the regulator. |
Finland | Price level for the transfer of energy is either imbalance price or DA spot market price - For FCR-N, ToE is set at imbalance price. - For mFRR pilot it was set at DA price. |
France | Price level for the transfer of energy is either retail price or (an approximation of) the sourcing costs. - Corrected model: ToE is price is equal to the energy price of the retail contract. Network fees and taxes are charged for the actual consumption. - Central settlement model (‘regulated model’): ToE is different depending on the type of customer, and the time of the year. The formula is set by the regulator and the parameters are updated yearly. |
Germany | Price level for the transfer of energy is the retail price; additional administrative costs may be compensated - ToE is compensated at the price of the energy price retail contract. There is also the possibility for the BRP to charge administrative costs for the exchange of schedules. |
Great Britain | Price level for the transfer of energy is both set and not set: - If customer shares their data, the supplier could charge the customer through a separate specification. The price is not regulated. - If customer does not share their data, the compensation is currently 0. Setting the ToE at a different price is under discussion. |
Netherlands | No price level set (no ToE implemented) - Central settlement not fully implemented. This corresponds to a price of 0 as part of the central mechanism, yet the compensation is agreed between the Supplier’s BRP and the aggregator (and therefore not an independent model). The transfer of energy price for central settlement will be prescribed by lower legislation in the future. |
Switzerland | Price level for the transfer of energy is DA spot price - For participation in balancing products, the ToE price is set at DA price. |
Table 6. Compensation level per country
Next to the aggregator model and the compensation mechanism, several other aspects need to be considered when implementing an independent aggregator framework.
The baseline methodology is key to quantifying the flexibility delivery not only for services but also for the transfer of energy. The baseline methodology for service delivery should be set by the system operator and is strongly dependent on the service requirements, such as response time, sustain time, etc.
For day-ahead and intraday markets, however, the baseline methodology for the transfer of energy should be regulated. Therefore, in this section, we focus on wholesale markets.
Only France and Belgium have implemented ToE for day-ahead and intraday trading, so the experience is rather limited. In Belgium, a historical baseline methodology is applied, whereas in France there is a choice between meter before meter after (MBMA), historical and nomination baseline methodologies. For the latter, the requirements to be eligible for nomination baseline are quite strict in terms of timing (e.g. the baseline needs to be submitted two weeks in advance) and accuracy, which makes it difficult for aggregators to comply.
The rebound effect and how to deal with it is one of the complexities of DSR, especially in combination with independent aggregation. Without further regulation, the rebound ends up in the supplier’s portfolio, potentially leading to imbalances. The aggregator is currently not responsible for the rebound effect in any of the studied countries: neither with respect to balance responsibility, nor to sourcing position. Countries like Germany have included a clause to further study this aspect with the return of experience from market parties. In France, rebound rules have been approved to consider the impact of rebound on the imbalance created for the supplier’s BRP. Nevertheless, the rules have not been applied yet because they are not considered a priority by market actors. Also in France, rebound effect will be taken into consideration when measuring the accuracy of the baseline, i.e. the rebound periods will be excluded from the calculations.
Another element is the IT systems used to facilitate independent aggregation, for example tasks related to perimeter correction, meter data collection, and flexibility settlement. Note that this does not intend to cover flexibility market platforms. Several TSOs have implemented their own platforms for perimeter correction and settlement, such as France and Netherlands. Next to that, there are data hubs but in general they do not support data collection for assets behind-the-meter. In Belgium, the Atrias data hub in planned to include functionality to facilitate the market access to distributed assets.[1]https://eu-sysflex.com/wp-content/uploads/2021/03/EUSYSFLEX-5.1.3-Report-Data-Platforms-FINAL-1.pdf Switzerland, the Netherlands and part of Germany are piloting Equigy Crowd Balancing platform.[2]https://equigy.com/the-platform/ This is still not part of BaU for Swissgrid, but TenneT is already using it, as one of the alternatives that BSPs have to transfer data. TenneT still relies on other systems for bidding and BRP perimeter correction.[3]https://www.tennet.eu/fileadmin/user_upload/SO_NL/aFRR_manual_for_BSPs_en.pdf In Switzerland, since there is no data hub, the information exchange and perimeter correction still lacks automation. Therefore, Swissgrid requires the aggregator to send schedules (15-minute granularity) with the delivered energy each day after delivery. As A. Chacko et al. mention in their paper,[4]https://www.qualygrids.eu/app/uploads/sites/5/2020/01/D180128-Central-Settlement-Model-Final-V2R0.pdf in Switzerland “managing the data of technical units changing their suppliers and balance groups is not yet ideally resolved as there is no central data hub at present which could support automation of such activities”. Another possible improvement to manage the high data volumes could be to make use of the metering systems to correct the activated energy of the balance groups instead of exchanging schedules."
The experience with residential flexibility by independent aggregators is limited to France, Finland and Switzerland. In Belgium, LV assets are not allowed to participate in balancing services; in GB and Germany, connections have to be half-hourly / quarter-hourly settled to participate in services and markets, which is not the case for most residential customers. In the Netherlands there is only residential participation within the supplier’s portfolio.
In France, Finland and Switzerland, the models applicable for residential flexibility are the uncorrected and central settlement model, although contractual is also a possibility. France implemented the central settlement model for smaller connections because the corrected model could have not been applied due to legal issues, e.g. metering that is used for customer settlement cannot be modified. A second obstacle for the corrected model is the fact that energy and grid tariffs are combined on the same bill, whereas grid tariffs need to be based on the physical use of the customer.
The Swiss and Finnish model for the residential sector is identical to the model for the industrial sector. However, the French model for the residential sectors shows several modifications, in particular the transfer of energy price, the baseline methodology and the perimeter allocation.
In France, the transfer of energy price for profiled customers, typically residential, is different from telemetered customers. The calculation of the ToE depends on the type of customer tariff and, similar to telemetered sites, is fixed on an annual basis for peak and off-peak hours. The ToE price is based on the ‘cost of sourcing energy’ in the annual CRE report ‘reglementary tariffs for selling energy’.
Since wholesale settlement of residential customers is based on synthetic load profiles in France, the perimeter allocation among the affected BRPs is performed by repartitioning between all households based on their subscribed power. The volume of the allocation is based on the difference between the calculated baseline and the metered power for participating (activated) customers. For the residential sector, there is a special baseline that is called ‘site to site rectangle’ which is a modified MBMA. Unlike for other baseline types, there is no prequalification required for the residential sector to use the site-to-site rectangle baseline.
In the table below we capture the information available on DSR participating in the different markets and (where possible) the extent to which the aggregator framework is used. The DSR numbers shown are not limited to independent aggregation.
Table 7. DSR participation per country
Country | FCR | aFRR | mFRR (& RR) | Wholesale | Capacity market |
Belgium | Main capacity comes from distributed assets (i.e. not large generators) | N/A | 10 BSPs (i.e. aggregators) and 24 suppliers offer balancing services. Around 47% of the delivery points use either the corrected or the central settlement aggregator model. Most of the volume comes from distributed assets. | Transfer of Energy in day-ahead and intraday markets just went live, no results yet. | In the first Y-4 auction, 7% of total capacity was awarded to DSR (~300 MW) |
Finland | FFR: 80 MW FCR-D: 410 MW FCR-N: 10 MW | N/A | mFRR up: 90-530 MW mFRR down: 0-100 MW | Implicit within BRP portfolio. DA: 200-600MW ID: 0-200MW | N/A |
France | In 2020, demand response capacity represented 18% of FCR volume. | N/A | In 2020, demand response capacity made up 45% of mFRR | Demand response volumes selected through the NEBEF mechanism reached 11 GWh in 2020, half the level recorded in 2019 | In 2019, around 2,3 GW of demand response was contracted under the capacity mechanism |
Germany | In 2018, industrial DSR participation of +/- 80MW | In 2018, industrial DSR participation of + 540 MW / - 660 MW | In 2018, industrial DSR participation of + 880 MW / - 840 MW | N/A | N/A |
Great Britain | 350 MW contracted capacity in 2020 in dynamic containment product. 800-1200 MW contracted for FFR in 2020, mostly from storage | N/A | In 2020, around 5 to 20 GWh were dispatched per month in the balancing mechanism. | N/A | Around 1,2 GW DSR contracted in the T-4 action in 2019. |
Nether- lands | 30 MW of storage is active in the FCR market in 2019 | N/A | 90 MW of demand response active in ancillary services (excluding demand-side generation). | It’s estimated that around 700 MW of demand response was active in the day-ahead market during the years of 2018, 2019 and 2020, within the BRP’s portfolios. | N/A |
Switzer- land | 3 MW of DSR participated in FCR in 2017 | 18.5 MW DSR participated in aFRR market in 2017, of which 8.5 MW industrial. | 49 MW of DSR in mFRR market in 2017. | N/A | N/A |
Most of the earnings models today are based on industrial and commercial flexibility, and most aggregators are not applying an independent aggregator model. Only a few independent aggregators are active in the residential sector.
In general, aggregators in the industrial sector rely mostly on capacity payments, and they mostly participate in balancing products and adequacy services such as strategic reserves or capacity markets. Energy payments represent only a small part of their revenues, since flexibility activations are not very frequent since industry has a relatively high marginal cost.
Aggregators agree that the industrial customer’s main driver is monetary remuneration for their flexibility and to a lesser degree they value the participation in the energy transition. Other elements are usually information portals or energy use insights; however these elements are a ‘nice to have’, not a deal breaker.
Due to the highly competitive environment, in some of the markets, the aggregator’s value proposition continuously changes, as does the terms in their contract with customers. But in general, the value proposition to industrial customers is the revenue from participating in different services. The aggregator usually applies revenue sharing (some of them 50%, some others in a different way) with the customer.
Moreover, today’s earning model are more and more relying on a multimarket approach. In the past, a portfolio of assets would offer one service, but today, to the extent possible, the same flexible pool or asset can participate in multiple products or markets (simultaneously or not, depending on the requirements) and bid in the markets that offer the most revenue in a particular moment.
In the residential sector, the earning models and value proposition are quite different from the industrial sector. Residential flexibility is more CAPEX intensive and has typically low marginal costs, because they manage assets like heat pumps, electric heaters, EVs and residential batteries. From interviews with aggregators, we identified various customer propositions for independent aggregators:
Aggregators find that the main driver for residential customers today, are not the earnings or savings. The customers are in general first movers that are driven by innovation and participating in the energy transition.
Independent residential aggregators can only monetise their flexibility in a few markets, namely, France, Finland and Switzerland. In France they can access the most revenue streams (balancing, adequacy and wholesale). Yet, according to one of the interviewed aggregators, the business of independent aggregators who are only active in the residential sector is difficult to sustain with the current market design because DSR is required to bear the cost of compensation to suppliers. Most aggregators active in this sector have separate sources of revenue, in either the industrial sector, or as an IT provider. For example, in France flexibility participation has reduced in the past year, because the revenues for aggregators were not enough to cover their costs once compensation is considered. Due to the need for additional flexibility in the system to achieve climate policy goals set in the law, including adequacy issues in the short and medium term, the ministry had to increase the additional capacity payment, (under a state aid regime usually referred to as ‘appel d’offres effacement’)[1] The increase of the subsidised additional capacity payment was approved by the European Commission following a request from the French ministry, as per the state aid European legislation. that aggregators could get on top of the usual markets. The European Commission published their official analysis of the French market reform plan, and raised their concern that activated volumes are fairly small (not only in residential DR, but overall in DSR participation in all “energy” markets, as opposed to capacity). The Commission states they “invite France to carefully monitor the volumes of energy effectively activated as persistently low energy volumes may be the sign of market barriers.”
We have conducted interviews with nine aggregators active in the countries in this study to get their feedback on the current aggregator models, what improvements they suggest and what elements are required for them to be active in a market. Most of the interviewed aggregators are active in the industrial and commercial sector, only two of the interviewed aggregators have extensive experience in the residential sector. Three of the interviewed aggregators are affiliated to a supplier but all nine of them perform independent aggregation to a certain extent.
For most aggregators the following elements make a market attractive:
Next to the regulatory framework, the markets and services must be designed to allow DSR participation in a level-playing field. For example, technology-inclusive baseline design and accuracy requirements, allowing for aggregation of flexibility in multiple geographical areas, suitable pre-qualification requirements for portfolios with large amount of assets, reasonable metering requirements for portfolios with large amounts of assets (e.g. not requesting high granularity data per asset in the portfolio),[1]This particularly applies for the cases where there is no data hub or straight-forward communication channel the possibility of stacking different products and to perform dynamic pooling.
Regarding aggregator models, the conclusions from the interviews are as follow:
Aggregators were concerned not only with the available models but also the barriers to applying them. Aggregators active in Belgium complain about the need of having to explore the contractual model first because it never results in an agreement and they always end up using the fall-back option anyway (i.e. central settlement). The reality is that this requirement only adds administrative burden and barriers for aggregators. Therefore, they would prefer having the possibility to apply central settlement directly, just like they can in the case of the corrected model.
In terms of compensation to the supplier the conclusions are:
Regarding balance responsibility, most independent aggregators agree that having balance responsibility (only during flexibility activation) or only being financially responsible for imbalance have more or less the same impact. Bearing balance responsibility only adds an administrative burden, but it does not kill the business case. However, a few aggregators considered that having balance responsibility is a risk, especially for a starting business with low liquidity or bank guarantee. Moreover, in the case they assign a third party to perform the BRP role, they would need to share revenues.
This chapter contains the lessons learnt for the Nordics on the implementation of the independent aggregator regulatory framework. The analysis is done based on the international experience described in section 2 and the Nordic context. Due to the differences in deployment and experience in the industrial & commercial, and residential sectors, the chapter will be split into each of the respective sectors.
This section contains the lessons learnt on the implementation of the independent aggregation in the industrial & commercial sector and it addresses the following questions:
1. What triggered the implementation of a regulatory framework for aggregation?
2. Which model was chosen to facilitate independent aggregation?
3. What should be the level of compensation / price formula?
4. Is the uncorrected model applied? For which products?
5. Do independent aggregators already have access to wholesale markets?
6. What are important factors for aggregators to enter (national) markets?
7. How is rebound handled?
8. What kind of IT systems are used to facilitate (independent) aggregation?
Energy costs and grid fees are combined on the same bill (although specified separately), except for very large industrial users
An initial legal assessment seems to suggest that in the Nordics, modifying meter values, e.g. by subtracting/adding activated flexibility volumes, and thus billing a different volume than the metered one, is generally not legal.
The large industrial players sometimes act as their own BRP or send their energy nominations to their supplier/BRP.
There are large industrial players that typically have their own balance responsibility, and are active offering DSR for some years, e.g. in Norway, Sweden, Finland.
The Nordic retail market is a fairly competitive market.
Looking at the experience of other countries we have seen that in general the compensation between aggregator and the supplier or BRP, if any, only covers the sourcing costs (or savings) of the supplier, any administrative costs are not covered. The exception to this is Germany, which also allows BRPs to decide whether they need to charge the aggregators for the so-called ‘schedule exchange’ as administration cost.
Although the Nordic market is fairly competitive, there are indications of suppliers having quite a profitable business leaving room for more efficient competition. Innovation is generally low, while price margins are relatively high.
Nordic industry energy tariff choice is fairly diverse. The larger industrial and commercial users are active in both day-ahead and the forward timeframes, either directly via their own trading desk, or indirectly via a portfolio manager (that offers access to the wholesale market to multiple customers). While most of these are exposed to day-ahead prices, the total exposure varies significantly. Smaller end-users are likely to act more similar to households in the respective countries, but we are not aware of any comprehensive overview of contracting behaviour.
Countries that have only implemented ToE for balancing markets, have set the prices at the DA price, such as Switzerland and the Finnish pilot.
Countries that have implemented ToE for both balancing and wholesale, have chosen the same ToE price formula for both markets. In this case, the DA price is not a suitable option.
Countries that have implemented the ToE for balancing and wholesale (France and Belgium) have considered the prices of forward energy markets, complemented (in the case of Belgium) by day-ahead prices.
France and Belgium try to set ToE price level to be representative of the supplier’s sourcing cost of electricity which are a proxy for retail tariffs, particularly for the C&I sector. In Belgium, the supplier ‘estimated’ margin is also accounted for, unlike France.
This does not lead to large differences, as supplier margins are relatively low.
All of the ToE price formulas have a temporal element, e.g. seasonal, time of the day, peak/off-peak.
Setting the ToE to DA price is a ‘practical and logical’ solution for balancing services according to some aggregators. However, this is hardly the case for ToE in ID markets and not an option for DA markets. CREG argues that giving too much weight on the DA price element does not realistically reflect the sourcing strategy of the supplier. In the Nordic countries, the balance between future and DA markets should be assessed per country since the retail tariffs are significantly different among countries, and thus the sourcing strategy would vary.
Given the difference in retail tariffs, if the Nordics were to harmonise a ToE formula, the price level per country could be different. The price formula, however, can still be harmonised.
Most industrial aggregators are not concerned with the ToE price, they normally man-age assets with very high activation costs, which makes the ToE price negligible, and that are activated infrequently. This would also be the case in Finland for reserve and capacity products like strategic reserves in Finland.
In France, where activations are more frequent in the wholesale markets, suppliers are actively discussing the ToE topic. Whereas in the rest of the countries it does not seem to be a point of interest.
Other costs, other than sourcing costs, might be relevant to include; such as capacity and balancing costs, that are normally included in the retail tariff.
Few aggregators, especially within the residential sector, have argued that this compensation should not be paid by the aggregator because it would be detrimental to their business case, while the overall effect of demand response would be positive for society. However, this argument did not convince regulators, in particular the German NRA, due to the market distortion argument.
The uncorrected model has been implemented by all analysed countries. This model is usually the first one to be adopted to allow independent aggregation participation since it does not require any fundamental changes.
This model is typically used in products that only have capacity payments, involve low energy activation volumes and/or are symmetrical, which would result in a (close to) net 0 energy consumption.
In the Netherlands, Belgium, Switzerland and Germany, this model is used for the FCR product. In France, next to the FCR product, aFRR also uses an uncorrected model, since this product is symmetrical at the moment, and there is little to no participation from aggregators.
In Great Britain, the uncorrected model is still in use for some balancing products and the capacity mechanism.
Finally, in Finland, the uncorrected model is applicable for FCR-D. Although FCR-D is not symmetrical, it is rarely activated (approximately 3% of the time).
The Nordic countries have two different FCR products: FCR-N and FCR-D.
The uncorrected model for the FCR-D product is already applied in Finland. Whereas for FCR-N, Fingrid applies a central settlement model.
The learnings from other countries are applicable in the Nordics for their FCR prod-ucts. For FCR-D, the learnings are limited to the experience of Finland, which have proven that the energy activations of these products are rare and therefore introducing a more complex model may not justifiable due to proportionality.
There are no capacity mechanisms within the market (Finnish and Swedish strategic reserves are outside the market).
It is DNV’s understanding that C&I are better hedged than households – higher shares of fixed price contracts, and larger DA exposure in Norway and Sweden than Finland and Denmark.
There is a strong focus in the Nordics to remove barriers for so-called split-responsibility models.
Allowing access to wholesale markets is more complicated than access to balancing products. For customers with (an appetite for) dynamic contracts, an aggregator can provide its services directly to the customer, without supplier consent (but not as an active market player). Facilitating this access may still be needed for customers with fixed energy tariffs (which may be more relevant to e.g. Norway than Denmark), and (possibly) in the future when capacity mechanisms are introduced. The framework for wholesale markets can be similar to balancing products, although setting the right ToE price formula may be even more delicate, and baseline design and monitoring are also far more complicated compared to balancing products.
There is little experience from the studied countries. In France, the rebound effect was studied but it was determined that the rebound effect will not impact the payment by the aggregator to the supplier because the supplier still provided the energy, so they should be remunerated for it by the customer. Potential imbalances that the rebound may have in the BRP’s portfolio are however not being accounted for at the moment. For now, none of the countries have provisions on compensation of the rebound to the supplier.
Rebound effect is strongly depending on the type of technology (e.g. emergency gen sets have 0% rebound, EV charging 100%). The Nordic context can be described by the technologies that future independent aggregators will operate in the Nordic markets, which is unknown.
Several countries are moving towards IT systems to lower barriers for distributed flexibility participation in markets and to lower TSO effort, realising that scalability is hardly possible without automation.
Switzerland, the Netherlands and part of Germany are piloting Equigy Crowd Balancing platform. This is still not part of BaU for Swissgrid, but TenneT is already using it, as one of the alternatives that BSPs have to transfer data. TenneT still relies on other systems for BRP perimeter correction.
In Belgium, the existing data hub for DSOs, Atrias, is now developing into a central market system platform that will facilitate the access of distributed flexibility into the market.
In France, and Great Britain, RTE and ELEXON have developed their proprietary systems for communication exchange and settlement.
Germany does not have a platform/data hub for flexibility transactions.
The Nordics are developing joint initiatives like eSett, for imbalance settlement. Data-hubs however are not harmonised and the NordREG recently concluded that making data hubs interoperable would not be cost effective compared to the benefits.[1] Implement Consulting Group - Nordic Data Hub Interoperability (nordicenergyregulators.org)
As country experience proved during operation and piloting, a system to register flexibility transaction and/or data exchange would:
Before addressing specific elements for the residential sector, first some observations are made about best practices and about the main differences between the residential and C&I sector.
Experiences with (explicit) flexibility in general, and independent aggregation specifically, are very limited.
In general, we conclude that experiences are too limited, to draw any solid conclusions that could inform policy makers in the Nordics. What we have observed:
Characteristics of residential flexibility and industrial flexibility are fundamentally different, which may lead to different choices when implementing a regulatory framework.
Figure 15. Main differences between residential and industrial flexibility
The main differences are shown in the figure above. This is a simplification, as some types of “cheap” flexibility can also be found within Industry; this is expected to develop further when industrial heat demand is electrified. However, it largely represents the current status quo, where industrial DSR is mainly active in adequacy mechanisms and capacity products such as STOR in Great Britain, mFFR-da (“noodvermogen”) in the Netherlands and interruptible loads AblaV in Germany. These differences, in general, complicate matters when developing a regulatory framework for independent aggregation in the residential sector; for example with respect to baseline design, compensation, transfer of energy price or rebound.
Baseline design, especially for the Transfer of Energy in wholesale trading
Baselines need to represent the counterfactual, i.e. the load pattern that would have occurred under normal circumstances, without DSR activation. Typical baselines for wholesale markets are based on historical load profiles, under normal conditions. This becomes complicated when this flexibility is activated or optimised on a daily basis, and the exceptional DSR activation becomes the norm.
Compensation, ToE price and rebound
Compensation from the supplier’s perspective is a neutralization of the sourcing costs which includes potential imbalance costs. However, from the independent aggregator’s perspective, it is the basis for arbitrage as the sourcing cost for an aggregator consists of the marginal costs for activation by the customer (e.g. value of loss load, fuel costs) and is increased by the costs for the compensation or Transfer of Energy. Residential flexibility, contrary to Industrial flexibility, typically consists of time-shifters and storage facilities, characterised by low-to-zero marginal costs. For instance, marginal costs of pre-heating and batteries are limited to energy losses; marginal costs of (shifting) EV charging may be 0 – although revenues may be shared with the customer.
For efficient market functioning, it’s not only important that load is reduced during peak hours, but also that the load is shifted to off-peak hours. For example, if the evening peak occurs between 17:00h and 19:00h, an aggregator can generate revenue by reducing the total load of an EV-charging portfolio from 17:00 to 18:00. If that load is fully shifted to the next hour, the peak in that hour is only aggravated.
From a market perspective, a shift is only valuable if the rebound occurs in a period with lower prices. Since in the studied models, rebound is not taken into account, the aggregator only needs to compare the ToE price with the wholesale price, and does not need to consider the rebound. Although the Aggregator can often (technically) control it – and even could generate revenue when wholesale off-peak prices are lower than the ToE price. The only relevant model (France) has not solved this conundrum yet, possible solutions likely require NEBEF to support load enhancement next to load curtailment.
The main lesson learned is that the ToE mechanism should be symmetrical. If this does not provide sufficient incentives for an aggregator to control the rebound, additional regulations are needed with respect to compensation and rebound.
The Electricity Market Directive (2019/944) is not yet fully transposed into national legislation, but this is essentially a matter of time. The Directive lays out requirements and suggestions (“may”) on how market participants engaged in aggregation and independent aggregators should be integrated into the electricity market, especially in Article 17.
Our study has focused on the requirements to enable demand side participation and, in particular, on the participation of aggregated loads. It becomes apparent that implementing these requirements is far from trivial, therefore studying implementations in different member states that have advanced this topic is highly relevant, whilst acknowledging certain differences between the member states. In this study we have analysed implementations and current developments in Belgium, Finland, France, Germany, Great Britain, the Netherlands and Switzerland.
Although the timing and triggers for implementing a regulatory framework for independent aggregation differs from country to country, many similarities on the principles can be observed, that are also applicable to the Nordics:
Given these strong similarities in principles, we conclude that experiences and best practices from other countries are relevant to consider. At the same time, experiences in the residential sector specifically, and to a lesser extent, wholesale trading, are very limited.
Although principles are similar, there are also differences between the countries when it comes to design choices, which are sometimes significant. Despite these differences, we still observe strong similarities in those design choices. These are highlighted in the table below.
Strong similarities | Limited differences | Substantial differences |
Aggregation model | Level of compensation | IT systems to facilitate independent aggregation |
Use of uncorrected model | Access to wholesale markets | |
Rebound | Balance responsibility |
Table 8. Differences in design choices per topic
Differences in design choices can often be traced back to country-specific conditions. The table below shows a summary of findings from our study on these differences, and connects these to conditions in the Nordic countries.
Topic | Main differences observed | Conditions in studied countries | Conditions in Nordics |
Level of compensation |
|
|
|
Access to wholesale markets* | Only implemented in France and Belgium** | France and Belgium have capacity mechanism (through market) | No capacity mechanism (through market). Strategic reserves in Finland and Sweden. |
Balance responsibility | Belgium and Finland (trial) require IA-BSP to conduct / assign BRP role, other countries don’t | Differences is caused by differences in implementing the BSP role (EBGL) | Implementation of BSP role has not been finalized. |
IT systems to facilitate independent aggregation | Large differences in IT systems used, mostly proprietary systems. | Strong interdependency with systems used for wholesale settlement, which is different in all countries. | All Nordic countries except Iceland use common wholesale settlement platform (eSett) |
*This difference can also be considered as a difference in timing, rather than in design **German implementation also allows access to wholesale markets; not shown here as this still requires an agreement between Aggregator and Supplier |
Table 9. Main causes for observed differences
The table shows that most of the causes that have led to different design choices are not applicable to the Nordics. However, a key take-away is that to harmonise the Nordic approach, it is important is to agree on certain common design principles:
Section 4 includes a summary of the lessons learned from the implementation in other European countries.
The table below summarizes the main findings common to most, if not all countries.
Topic | Commonalities |
Aggregation model | All countries studied, except Germany, have a form of central settlement model in place (France and Belgium have also implemented a corrected model) |
Use of uncorrected model | All countries use an uncorrected model for certain products, typically capacity-only products or capacity products with a small energy component such as FCR. |
Rebound | None of the countries have taken rebound into account in relation to the open balancing and/or sourcing position (i.e. compensation) yet. |
Level of compensation | All countries have implemented/plan to implement a compensation payment between the independent aggregator and supplier. Most countries set the compensation at (an approximation of) the retail tariff level (excluding taxes and network tariffs) or at the level of the sourcing costs, both leading to similar price levels. |
Access to wholesale markets | Most countries seem to struggle with implementing this aspect. Belgium has implemented it, yet there is no practical experience gained yet. France has implemented it, yet only for demand turn-down, and with quite some restrictions (e.g. strict requirements on baselines). |
Balance responsibility | All independent aggregators need to be or be assigned a BRP to be active in the wholesale market. For balancing services, all independent aggregators bear financial balance responsibility, at least for under-delivery. Different regulations can be observed with respect to over-delivery. |
Table 10. Main commonalities found on independent aggregator regulatory framework implementation on the different countries.
Adequacy | General meaning: the state or quality of being adequate; sufficiency for a particular purpose. Specific in energy markets: whether the generation capacity is sufficient to meet the demand. http://www.dictionary.com/browse/adequacy?s=t |
Adequacy product | Product that is intended to increase the adequacy of the system. It is one of the possible flexibility products. |
Allocation | Allocation of measured energy consumption in a certain control area to the different BRPs. |
Ancillary and balancing services | Ancillary and balancing services refer to a range of functions which TSOs contract so that they can guarantee system security. These include black start capability (the ability to restart a grid following a blackout); frequency response (to maintain system frequency with automatic and very fast responses); fast reserve (which can provide additional energy when needed); the provision of reactive power and various other services. https://www.entsoe.eu/about-entso-e/market/balancing-and-ancillary-services-markets/Pages/default.aspx |
Arbitrage | In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. https://en.wikipedia.org/wiki/Arbitrage |
Balancing | The act of reducing/increasing load/generation by a BRP in an attempt to restore its portfolio imbalance. Similarly, the act of reducing/increasing load/generation by a TSO in an attempt to restore the system imbalance. In the latter case, the TSO uses balancing services for this purpose. Balancing refers to the situation after markets have closed (gate closure) in which a TSO acts to ensure that demand is equal to supply, in and near real time. https://www.entsoe.eu/about-entso-e/market/balancing-and-ancillary-services-markets/Pages/default.aspx |
Baseline | It is the best approximation of the energy consumption or production that would have occurred, if no DR event would have been triggered. Used to quantify the delivered flexibility. |
Contracted bidding | The acts of placing bids on a market which was committed beforehand via a (contractual) obligation. This is a way for the contracting party to ensure certain market volume. Opposite of free bidding. |
DER | Distributed Energy Resource |
Dispatch | Turn on or off a power generation unit or adjust their power output according to an order. Dispatching of a generation unit is generally at the request of power grid operators or of the plant owner to meet the demand in the power system, and based on the merit-order. Opposite of intermittent energy sources. https://en.wikipedia.org/wiki/Dispatchable_generation |
Ex-ante | The term ex-ante is a phrase meaning "before the event".[1] Ex-ante is used most commonly in the commercial world, where results of a particular action, or series of actions, are forecast in advance (or intended). The opposite of ex-ante is ex-post (actual). https://en.wikipedia.org/wiki/Ex-ante |
Explicit distributed flexibility | Form of flexibility where customers makes an explicit change in demand/generation in response to a signal, and is specifically rewarded (remunerated) for that change. |
Ex-post | "Afterward", "after the event". Based on knowledge of the past. Measure of past performance. https://en.wikipedia.org/wiki/Ex-post |
Ex-post nomination | The possibility for BRPs to include transactions after the Operation phase (i.e. after the associated ISP) by a change in their approved E-programs. This changed is processed by the TSO before the allocation. Via this mechanism BRPs can mutually settle imbalances and avoiding the imbalance penalties raised by the TSO. |
Flexibility service quantification | Determination of the amount of load/generation reduction/increase in terms of instantaneous power [W] or energy during a certain time interval [Wh]. To determine whether the service was actually delivered with the right quantity. A baseline is needed for this purpose. |
Free bidding | The act of placing bids on a market without a (contractual) obligation to do so. Opposite of contracted bidding. |
Gaming | Using the rules and procedures meant to protect a system in order, instead, to manipulate the system for a desired outcome. Gaming is a form of abuse. See also arbitrage. |
Grid | Network for the transport and distribution of energy. |
Implicit distributed flexibility | Situation where customers are exposed to varying energy prices and/or grid tariffs and respond by adapting their energy demand profile. In general, consumers exposed to such tariffs might have an automated system or a 3rd-party (ESCO) service that helps them to consume their energy at optimal prices. |
Merit-order | The merit order is a way of ranking available sources of energy, especially electrical generation, based on ascending order of price (which may reflect the order of their short-run marginal costs of production) together with amount of energy that will be generated. In a centralized management, the ranking is so that those with the lowest marginal costs are the first ones to be brought online to meet demand, and the plants with the highest marginal costs are the last to be brought on-line. Dispatching generation in this way minimizes the cost of production of electricity. Sometimes generating units must be started out of merit order, due to transmission congestion, system reliability or other reasons. https://en.wikipedia.org/wiki/Merit_order |
Nomination | The act of informing the counterparty about the forecasted energy profile for the near future. For example, a day-ahead nomination for the full next day, an intra-day nomination for the remainder of the day or short-term nomination for one or more ISPs. |
Notification | Activation request by the system operator towards the flexibility service provider. In case of wholesale trading: closure of wholesale trade. |
Passive balancing | A BRP helps reduce the imbalance for the whole control area by deviating from its own electricity program. If this contributes to reducing the total imbalance, the BRP may receive remuneration for its passive contribution, depending on market design. |
Perimeter correction | Adjustment of the imbalance volume of the corresponding BRP. Normally performed by the ISR role to avoid that flexibility activation would result in an imbalance due to the changed energy volume. |
Rebound effect | The phenomenon that the load reduction (or increase) triggered by a demand response event, is compensated partly or fully outside the activation period or by other resources. |
Redispatch | The act to compensate a demand/generation increase/reduction of an asset by an opposite change at another asset within the same portfolio or region such that the remaining profile at portfolio level or region level remains constant. This mechanism is sometimes used to solve grid congestion issues. |
Resolution | The resolution of a flexibility product refers to the time intervals of the measure load/generation profile which should also align with the resolution of the baseline. |
Service window | Time of the year/week/day that a certain service is active (e.g. strategic reserves are typically limited to the winter period). |
Settlement | Determining the energy production and consumption and used flexibility as preparation for the billing process. |
Sourcing (of energy) | Purchasing of energy. |
Spot Market | A spot market or is a public financial market in which financial instruments or commodities are traded for immediate delivery. Day-ahead markets and intra-day markets are both spot markets. https://en.wikipedia.org/wiki/Spot_market |
Transfer of Energy | Energy volumes transferred between the BRP of the Aggregator and the BRP of the Supplier. In this text the Transfer of Energy is used to compensate the BRP of the Supplier for the effects of flexibility activation by an Aggregator, and to source the energy associated with this activation. |
A team from DNV: Aurora Sáez Armenteros, Hans de Heer, Jørgen Bjørndalen
© Nordic Energy Research 2022
Published April 2022
NordicEnergyResearch2022-04
http://doi.org/10.6027/NER2022-04
Layout: Mette Agger Tang
Images:
Introduction: Johannes Hurtig and Thomas Evans, Unsplash
Chapter 1: Daniel Welsh and Alexander Jawfox, Unsplash
Chapter 2: Joakim Honkasalo and Engin Akyurt, Unsplash
Chapter 3: Martin Brechtl and Lucas Santos, Unsplash
Chapter 4: Ivor Vaz and Johannes Plenio, Unsplash
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