Volume 21 • Number 4 • July/August 2023

READY
TO
SWITCH? SKM Mobile App for iOS and Android!
Take SKM on the go! The SKM Mobile app provides an intuitive experience that let’s you
quickly and easily collect data from the field and seamlessly import it to your PTW desktop

Receive up to 60% off program! You can also view study results on your phone or tablet - such as what arc flash
PPE to wear or to verify equipment settings!
View one-lines, take pictures, videos, scan QR codes, scribble notes, and more!
when you switch
to SKM.
Benefits MySKM Cloud
You’ll also receive Transfer field collection directly to SKM without having to Upload Mobile app projects to MySKM to use in PTW
write anything down on paper. desktop software and vice-versa!
free service to convert Take pictures, videos, audio, scribble notes and save with Download PTW desktop projects to allow field engineers
each equipment.
competing software to verify equipment settings and study results, such as
available short circuit results, incident energy, required
Scan QR equipment codes to quickly locate the
projects over to SKM! component on the mobile app to view equipment details
PPE selection, and more!
and study results. Assign users and maintain security permissions for each
project.
View entire power system oneline while in the field in the
palm of your hands!

“The main advantage with

Power*Tools for Windows is ARC FLASH EVALUATION
Design safer power systems while ensuring compliance with NEC,
its user-friendliness. PTW is OSHA, BFPA, IEEE, NESC, and CSA standards.
easy to use and the ready- Fully integrated with Short Circuit, Over-Current Coordination,
and Equipment Evaluation modules.
to-use standard models
Evaluate alternatives quickly and easily to establish an optimal design.
enable you to speed up Save time by automatically generating arc flash labels and work permits.

your work. Changing data is Increase flexibility by creating custom labels in any size with
user-defined logos, text, comments, and field placement.
simple and makes evaluating
Compare results from multiple project scenarios in a single table.
different cases very easy.”

ADDITIONAL SOFTWARE FROM SKM

DAPPER® Integrated Electrical Analysis Software. Comprehensive AUTO DESIGN Automatically sizes Cables, Transformers,
Three Phase Short-Circuit Studies, Load Flow Study, Demand Load Buses, and Protective Devices to achieve proper size and
Study, Feeder and Transformer Sizing Study, Impact Motor Starting ratings that meets criteria limits set by the Equipment Evaluation
Study, and Load Schedules. (Unbalanced Studies also available) study. Utilize user-defined Design libraries. Best suited for new system
CAPTOR® Time-Overcurrent Coordination. Graphical Time-Overcurrent designs or to resolve undersized and/or overdutied equipment for
Coordination. Integrated with one-lines, short-circuit modules, Equipment existing systems. (Requires Equipment Evaluation module)
Evaluation, and Arc Flash. Comprehensive protective device library. I*SIM Dynamic Simulation and Transient Stability. Model, Simulate,
AUTO COORDINATION & EVALUATION Instantly identify and Analyze Dynamic Responses to Power System Electro-Mechanical
coordination and protection issues by evaluating each Disturbances. Includes Generator Sizing and Stability, Rotor Angle and
equipment for adherence to the National Electric Code (NEC). Voltage Stability, Flux Level Machine Representation, Identify Fault
Automatically make changes to resolve violations. Clearing Times. User Defined Graphical Models for Exciter, Turbine
Governor, PSS, and other controllers.
CABLE AMPACITY Accurate calculation of ampacity and
temperature rise in various power cable installations. Based GROUND MAT Substation Ground Grid Design and Analysis. Optimizes
on and fully compliant with IEC 60287. grid design using general purpose finite element algorithm for
potential analysis and graphical facilities to validate grounding
DC SYSTEMS ANALYSIS Battery Sizing, Load Flow, & Short Circuit
systems efficiency.
PO Box 12123 Analysis. Evaluate all loading conditions for DC duty cycle loads and
AC emergency loads. Complies with IEEE std. 485, 1115, 399, 946,
Zephyr Cove, NV 89448 Visit skm.com for more products!
and IEC std. 61660.
1-800-500-4SKM
www.skm.com • [email protected]
CHOSEN BY THE TOP 40 ELECTRICAL ENGINEERING FIRMS IN THE WORLD
 magazine

Volume 21 • Number 04 • July/August 2023

www.ieee.org/power

on the
cover
53
©SHUTTERSTOCK.COM/VECTORMINE

features

contents
18 Allowing British Electricity Consumers 53 From the Humble Building to the
to Choose Their Supplier Smart Sustainable Grid
By Steve Thomas By Iason-Iraklis Avramidis,
Florin Capitanescu, Geert Deconinck,
26 Achieving Retail Liberalization Himanshu Nagpal, Per Heiselberg,
in Middle-Income Countries and André Madureira
By Gabriel Cunha, Paula Valenzuela,
Gisella Siciliano, Angela Magalhães Gomes, 64 The Challenge of Integrating
Mateus Cavaliere, and Luiz Barroso Demand Response
By Pablo Rodilla, Paolo Mastropietro,
36 Beyond Individual Active Customers and Paulo Brito-Pereira
By Nicolò Rossetto
72 Assuring a Sustainable
45 From “Fit and Forget” to “Flex or Decarbonization
Regret” in Distribution Grids By Tim Schittekatte and Carlos Batlle
By Ellen Beckstedde and Leonardo Meeus

columns &
departments
4 Editors’ Voice 89 Society News
12 Leader’s Corner 95 Obituary
16 Guest Editorial 96 Calendar

81 80
81
Book Review
History
100 In My View

Digital Object Identifier 10.1109/MPE.2023.3276102

july/august 2023 IEEE power & energy magazine 1

 magazine

Editor-in-Chief Assistant Editor IEEE Periodicals/Magazines Department

Innocent Kamwa Sherry Hensley 445 Hoes Lane, Piscataway, NJ 08854 USA
[email protected] Kristin Falco LaFleur, Senior Journals Production Manager
Editorial Board Patrick J. Kempf, Senior Manager, Production
Past Editors-in-Chief L. Anderson, L. Barroso, H. Chen, A. Conejo, Janet Dudar, Senior Art Director
Steve Widergren M. Correia de Barros, H. Holttinen, S. Imai, C.-H. Kim, Gail A. Schnitzer, Associate Art Director
Michael Henderson D. Lew, M. Miller, D. Novosel, A. Orths, P. Panciatici,
E. Uzunovic, M. Vaiman, C. Wang Theresa L. Smith, Production Coordinator
Founding Editor-in-Chief Felicia Spagnoli, Advertising Production Manager
Melvin Olken Spanish Editorial Board Peter M. Tuohy, Production Director
Enrique Tejera, Editor-in-Chief Kevin Lisankie, Editorial Services Director
Associate Editors Editors: M. Baquedano, J. Cerda, G. Gonzalez Dawn M. Melley, Senior Director, IEEE Publishing
John Paserba, History Operations
B. Badrzadeh, B. Johnson, Y. Liu, J. Matevosyan, Advertising
B. Mather, Issues Beverly Grimme, Naylor Association Solutions
Jianhui Wang, Submissions direct: +1 352 333 3367, cell: +1 904 881 0862, IEEE prohibits discrimination, harassment, and bullying. For more infor-
Jill Duplessis, Columns and Special Issues fax: +1 703 790 9199, [email protected] mation, visit http://www.ieee.org/web/aboutus/whatis/policies/p9-26.html.

IEEE POWER & ENERGY SOCIETY (PES)

The IEEE Power & Energy Society is an organization of IEEE members whose principal interest is the advancement of the science and practice of electric power generation,
transmission, distribution, and utilization. All members of the IEEE are eligible for membership in the Society. Mission Statement: To be the leading provider of scientific and
engineering information on electric power and energy for the betterment of society, and the preferred professional development source for our members.

Governing Board Technical Council IEEE Power Engineering Letters, R. Jabr

J. Bian, President H. Chen, Chair; D. Watkins, Vice Chair IEEE Trans. on Energy Conversion, D. Aliprantis
S. Bahramirad, President-Elect J. McBride, Secretary; V. Vittal, Past-Chair IEEE Trans. on Power Delivery, F. DeLeon
H. Chen, Vice President, Technical Activities IEEE Trans. on Power Systems, J. Milanovic
B. Enayati, Vice President, Education Technical Committee Chairs IEEE Trans. on Smart Grid, C. Canizares
B. Pal, Vice President, Publications S. Miller, Analytical Methods for Power Systems IEEE Trans. on Sustainable Energy, B. Chowdhury
W. Bishop, Vice President, Conferences & Meetings J. Lau, Electric Machinery IEEE Open Access Journal of Power and Energy, F. Li
J. Romero Aguero, Vice President Chapters K. Strunz, Energy Development & Power IEEE Power & Energy Magazine, I. Kamwa
& Membership Generation eNewsletter, TBD
N. Hadjsaid, Vice President, New Initiatives S. Vechy, Energy Storage & Stationary Battery Editor-in-Chief at Large, N. Hatziargyriou
& Outreach Y. Wen, Insulated Conductors Marketing, E. Batzelis
Chan Wong, VP Strategic Communications M. Bowman, Nuclear Power Engineering PES Representative to IEEE Press, K. Bhattacharya
& Partnerships J. Formea, Power System Communications Website, R. Rana
J. Montero, Treasurer & Cybersecurity Meetings
J. Sykes, Secretary B. Pal, Power System Dynamic Performance Committee Chairs
S. Rahman, Past-President J. Britton, Power System Instrumentation General Meeting Steering, A. St. Leger
M. Chaganti, Region Rep., U.S. & Canada & Measurements Joint Technical Committee Meeting Steering, D. Sabin
H. Albuflasa, Region Rep., Europe, J. Wang, Power System Operation Planning Technically Cosponsored Conferences Steering,
Middle East, & Africa & Economics Daniel Diaz
S. Leon, Region Rep., Latin America M. Thompson, Power System Relaying & Control Transmission & Distribution Conference &
R. Kappagantu, Region Rep., Asia & Pacific J. Mathieu, Smart Building, Load & Customer Systems Exposition Committee for North America
M. Chelangat, Member-at-Large Climate Change J. Warner, Substations Steering, C. Segneri
G. Gonzales, Member-at-Large, Diversity & Inclusion S. Hensley, Surge Protective Devices Innovative Smart Grid Technologies North America,
N. Nair, Member-at-Large, Global Outreach D. Edwards, Switchgear R. Melton
A. Shah, Member-at-Large, Student/Young E. teNyenhuis, Transformers Innovative Smart Grid Technology Conference–
Professionals Representative E. Surmanis, Transmission & Distribution Europe, Gianfranco Chicco
Innovative Smart Grid Technology Conference–
IEEE Division VII Director Technical Council Coordinating Committees Asia, D. Sharafi
C. Canizares H. Sun, Energy Internet PowerAfrica Steering Committee, B. Lequesne
IEEE Division VII Director-Elect J. Follum, Intelligent Grid & Emerging Technology Education
C. Root D. Alexander, Marine Systems Committee Chairs
Y. Zhang, Renewable Systems Integration Power & Energy Education, S. Kamalasadan
PES Executive Director PES Scholarship Plus, D. Zabetakis
T. Licitra Technical Council Standing Committees
V. Vittal, Awards PES University, Meredith Southergill
Standing Committee Chairs Open, Industry Education Instructional Quality & Initiatives, L. Fan
A. Rotz, Constitution & Bylaws Selection & Quality Control, S. Kamalasadan
J. McBride, Organization & Procedures Website, J. Rickson
J. Mitra, Fellows T. Irwin, Standards Coordination
J. Montero, Finance D. Watkins, Technical Sessions New Initiatives and Outreach
V. Madani, History Open, Webmaster Committee Chairs
S. Bahramirad, Long-Range Planning V. Vittal, Entity Proposal Management Committee Corporate Engagement Program, M. Vaiman
S. Rahman, Nominations & Appointments Diversity, J. McClanahan
Publications Executive Advisory Council, K. Curtis
Region Representatives Publications Board Chair, B. Pal
H. Albuflasa, M. Chaganti, M. Gosalia, IEEE Smart Cities, G. Zissis
R. Kappagantu, J. Khan, S. Leon, M. Papic, Editors-in-Chief IEEE Smart Grid, Wei-Jen Lee
M. Patel, S. Sarkar, X. Wu IEEE Trans. on Energy Markets, Policy, IEEE Smart Village, J. Nelson
and Regulation, D. Kirschen Industry Tech Support Leadership, A. Paaso
Chapter Committee Chairs IEEE Electrification Magazine, L. Fan Media Engagement, D. Kushner
P. Pabst, Chapter Awards and Recognition
B. Gwyn, Distinguished Lecturer Program
A. Shah, Student Chapters Coordinator IEEE Power & Energy Magazine
S. Fattah, Humanitarian Activities IEEE Power & Energy Magazine (ISSN 1540-7977) (IPEMCF) is published bimonthly by the Institute of Electrical and
Electronics Engineers, Inc. Headquarters: 3 Park Avenue, 17th Floor, New York, NY 10016-5997 USA. Responsibility for the
L. Leon, Women in Power contents rests upon the authors and not upon the IEEE, the Society, or its members. IEEE Operations Center (for orders, sub-
A. Paul, Young Professionals scriptions, address changes): 445 Hoes Lane, Piscataway, NJ 08854 USA. Telephone: +1 732 981 0060, +1 800 678 4333.
V. Vittal, Life Members Individual copies: IEEE members US$20.00 (first copy only), nonmembers US$89 per copy. Subscription Rates: Society members
T. Ribeiro, Entrepreneurship included with membership dues. Subscription rates available upon request. Copyright and reprint permissions: Abstracting is permit-
ted with credit to the source. Libraries are permitted to photocopy beyond the limits of U.S. Copyright law for the private use of
Strategic Communications patrons 1) those post-1977 articles that carry a code at the bottom of the first page, provided the per-copy fee indicated in the code
& Partnership is paid through the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923 USA; 2) pre-1978 articles without fee.
L. Paredes Muse, PES Day For other copying, reprint, or republication permission, write Copyrights and Permissions Department, IEEE Operations Center, 445
J. Cepeda, Awards & Recognitio Hoes Lane, Piscataway, NJ 08854 USA. Copyright © 2023 by the Institute of Electrical and Electronics Engineers, Inc. All rights
reserved. Periodicals postage paid at New York, NY, and at additional mailing offices. Postmaster: Send address changes to IEEE
Digital Object Identifier 10.1109/MPE.2023.3276104 Power & Energy Magazine, IEEE Operations Center, 445 Hoes Lane, Piscataway, NJ 08854 USA. Canadian GST #125634188
Printed in U.S.A.

2 IEEE power & energy magazine july/august 2023

 THE ALL-IN-ONE TOOL FOR
POWER SYSTEM ANALYSIS
PowerFactory is a leading power system analysis software application for use in analysing
electrical systems. It covers the full range of functionality from standard features to highly
sophisticated and advanced applications, including wind power, distributed generation,
real-time simulation and performance monitoring for system testing and supervision.
 Broad coverage of state-of-the-art power system applications
 Efficient and robust calculation algorithms for simulation and optimisation
 Extensive and flexible modelling capabilities with a rich suite of power equipment models
and libraries
 Support of all network representations and phase technologies
 Time-based network extension modifications, ensuring accurate network modelling
 Powerful network diagram and graphic/visualisation features
 Single- and multi-user environment
 Wide range of plots, both standard and function-specific
 Unlimited possibilities for process automation and optimisation based on integrated
scripting functionality
Delve into PowerFactory´s vast array of applications and features and find out what
PowerFactory can do for you!

For more information visit

www.digsilent.de/powerfactory
Serving more than 170 countries.
 editors’ voice
Innocent Kamwa

consumer empowerment:
much talk, little progress
new findings in market design and experiments

O
OVER THE LAST FEW YEARS, I like “diversification.” Deloitte Canada competition has generally resulted in
have usually started any keynote I have states that diversity and redundancy in mixed results if not failures.
been invited to give with a pitch about energy supply chains aim at ensuring The residential consumer does not
the 4D transformation of the electric reliability and resilience of the electri- understand enough about the market-
energy industry toward “decarboniza- cal system. In my case, and I share this based price mechanisms to benefit
tion, digitalization, decentralization, viewpoint with many, the last D means from the competition when multiple
and democratization.” While most “democratized,” defined as follows: choices exist. The government is also
agree on the first three Ds, some en- “Consumers are increasingly empow- keen to play the role of a grandpa, not
ergy specialists simply ignore the last ered to challenge the status quo.” So, refraining from disrupting the market
D, while others give it another meaning the power will be turned to the con- by forcing postage stamp rates across
sumers? Really? Based on the findings the board or capping any price spiral-
Digital Object Identifier 10.1109/MPE.2023.3269542
in this issue, empowering the consum- ing out of control. In my service terri-
Date of current version: 21 June 2023 ers by opening the retail market to tory, the law was to let the price follow

In This Issue
The electricity market, which has long been lopsided, has hit tition. It provides a reference for countries in the process
a bottleneck in responding to new goals such as decarboniza- of retail liberalization.
tion. It is a consensus that unlocking end-user flexibility is the The second article, by Cunha et al. [A3], provides a
key to changing this situation, which means end users must broader discussion of the Brazilian circumstances, con-
have sufficient rights to participate in the electricity market. straints, and successes in achieving retail market liberaliza-
Opportunities often come with challenges. Devolved tion that can apply to many middle-income countries fac-
power inevitably needs to be accompanied by sound ing similar challenges.
mechanisms for regulation. Therefore, this issue with seven The third article, by Nicolò Rossetto [A4], focuses on
articles focuses on regulatory regimes, market tools, and the energy communities explicitly mentioned for the first
solutions to promote consumer empowerment based on time in the new European legal framework. The author
the practical experiences of various countries. summarizes why European policymakers decided to pro-
In the “In My View” column [A1], Jaume Loffredo de- mote the emergence of an energy community, analyzes
scribes the European Union’s experience and lessons the similarities and differences between citizen energy
learned in consumer empowerment and discusses the criti- communities and renewable energy communities, and il-
cal steps needed to ensure consumers actively participate lustrates the emerged critical issues and the opportunities
in the electricity market. that Europe’s current energy crisis may represent.
The first article, by Stephen Thomas [A2], presents The fourth article, by Ellen Beckstedde and Leonardo
valuable lessons from the United Kingdom to discuss the Meeus [A5], points out the congestion problems that result
obstacles faced by fully competitive electricity market re- from new grid users, such as electric vehicles or renew-
forms in the United Kingdom, especially involving compe- able energy, connected to the distribution network. With

4 IEEE power & energy magazine july/august 2023

 IRONIC.
Small interruptions. Big complaints.

THERE’S A BIG DISCONNECT BETWEEN OUTAGES AND RELIABILITY SCORES.

LOREM
IT’S TIME TOIPSUM REDEFINE DOLOR SIT
RELIABILITY.
UIS NOSTRUD EXERCITATION ULLAMCO LABORIS NISI UT UIS NOSTRUD RIS
At S &C, we focus on better standards, not just better scores. Even if your SAIDI and SAIFI scores satisfy
boardroom scorekeepers, momentary outages cause major inconveniences for your customers. The time has come to
demand a higher standard of reliability. By integrating the newest technology to strengthen your grid, S&C is focused on
delivering reliability of a different kind – because from small interruptions come big complaints.

Plan for perfect power with S&C, the worldwide leader in reliability.

See the difference at sandc.com/reliability20

© S &C Electric Company 2017-2020. All rights reserved.
 a focus on Europe, the authors explore the demand, orga- Rodilla et al. [A7], defines a comprehensive framework for
nization, and openness issues of distribution network con- the participation of demand resources in capacity mecha-
gestion management. nisms, identifies all potential participation modes, high-
Unlocking the full potential of bottom-up flexibility lights the inefficiencies that could arise from certain de-
for electricity consumers can help move toward a low- signs, and makes regulatory recommendations.
carbon energy system. The fifth article, by Avramidis et al. The lack/insufficient availability of long-term hedging in
[A6], discusses the challenges and potential solutions for the power market has led to the current affordability issues in
consumers to actively contribute to a low-carbon energy Europe. The last article, by Tim Schittekatte and Carlos Batlle
system, focusing on the chain of improving sustainability: [A8], explains how to proactively mitigate affordability con-
pure consumers, passive prosumers, smart and sustainable cerns by complementing the long-term market. The authors
buildings, local energy communities, and finally, smart recommend adding affordability options to the long-term
sustainable distribution grids underpinning a clean energy market and explain how to procure these options within the
transition. current regulatory framework.
Integrating demand resources adds complexity to
the design of capacity mechanisms. The sixth article, by —Yanli Liu

the inflation, which was an incentive to to cap the increase to 3% after the in- European governments earmarked and
install self-generation as a shield from flation exceeded 6.5% last year. This allocated up to 8% of their gross do-
future electricity price increases. Sud- situation is not unique. As shown by an mestic product to shield households
denly, the government changed the law article in this issue, from 2021 to 2023, and industry from high energy prices.

6 IEEE power & energy magazine july/august 2023

 Again, the power is not in the hands of sources to +50% at times, with the side In this same context, there is an
the customer but in those of the gov- effect of negative wholesale electricity interesting experiment going on in
ernment. To hedge against this sudden prices or green energy curtailment be- the sunny Mediterranean in the south
energy pricing turmoil, without dis- coming a major issue. With a holistic of France, with the romantic name
rupting the spot price signals, the au- viewpoint, Enedis, the French distribu- of “Solar Social Club” (http://www.
thors of an article in this issue propose tion system operator (DSO), published sunleavs.com): you can produce your
a new financial instrument, called a few weeks ago a new five-year net- solar energy, share it with the mem-
“affordability options,” as a complement work development plan. It focuses on bers of your Solar Social Club, and
to long-term markets. “electric sobriety, clean mobility, ac- consume your own energy. This con-
Regarding self-production, we have celeration of renewable energies, and cept is essentially a use case for the
learned promising stories from Austra- self-consumption.” This DSO reported energy community described in one
lia, Germany, or California in the Unit- a minimum reliability score of 99.9% of the articles of this issue. Thanks
ed States. The high cost of electricity in (i.e., a time period with no service in- to a sensor associated with a Solar
certain areas of those countries, com- terruption), while the average reliabil- Social Club, a real social network
bined with government financial in- ity stands at 99.99%. Empowering the between inhabitants of the same dis-
centives for decarbonizing electricity, consumer should not come at the price trict, spanning not more than 2 km
has made the rooftop solar photovol- of reducing the remarkable level of re- and sitting on the low-voltage side
taic a no-brainer choice for customers liability and resulting comfort to which of the grid, allows the consumers
seeking affordable green electricity. we are accustomed. A paper in this is- to better manage energy consump-
This situation has brought the penetra- sue has termed this tradeoff “fit-and- tion and create links with neighbors.
tion rate of intermittent renewable re- forget” versus “flex-and-regret.” Connected between the meter and
the electrical panel of the home, the
individual sensor allows for real-time
monitoring of the consumption and
energy distribution in different ap-
pliances. The data collected allow
the dynamic distribution of the self-
generated local electricity, between
each member of the Solar Social Club,
while still being connected with the
main grid for energy security and
power balancing.
Another advantage is virtual stor-
age; for example, during vacation, the
solar energy produced is stored virtu-
ally (consumed by the neighbor, in
(a)
fact) and is returned to the homeowner
when needed. A kind of transactive
energy optimized at the district level,
which may include building automa-
tion and energy management systems,
leads into a broader discussion under-
scored in one of the papers in this is-
sue: not only “what the building can do
for the network” in terms of grid ser-
vices, for example, but also “what the
building can do for the people in the
district” by giving back the economic
efficiencies, achieving the feeder-level
resiliency of their energy provision un-
(b) der harsh climates hazards, and more
importantly, rewarding the communi-
figure 1. Energy communities: (a) distributed energy resources in a green ty’s efforts toward a green society.
district and (b) a solar social club. (Source: http://www.sunleavs.com; used with This long overdue issue on markets and
permission.) regulatory designs and experiments

8 IEEE power & energy magazine july/august 2023

 to put more power in the hands of the
consumer addresses all facets of the
problem, considering the return of ex-
perience from a representative subset of
jurisdictions around the world. In Eu-
rope, the recent focus on energy com-
munities (Figure 1) is highlighted by
two papers that address their barriers
and enablers from both the smart build-
ing integration and regulatory view-
points with the recourse of research
and field experience. The integration of
flexibility in the planning tools of DSOs
to achieve the same reliability level
while enhancing resiliency in the face
of more frequent climate hazards is dis-
cussed in another paper and in the “In
My View” column. The after-the-fact figure 2. The IEEE PES Technical Council Resources Center: https://ieee-pes.
analysis of the retail market liberaliza- org/technical-activities/technical-council/.
tion in Great Britain, the bellwether of
this trend, will convince several public market-based dynamic pricing. It is large centralized generation from cheap
energy commissions worldwide to stick time for further studies. hydro, and a new appetite for distributed
with their postal stamp tariffication ap- The case of Brazil is also interesting as energies are mashed up to create a difficult
proach and leave their citizens outside a social laboratory where energy poverty, market design environment. When you

Learn how real-time

simulation and HIL testing
are changing the grid

Free resources for power system professionals interested in hardware-in-the-loop

The RTDS® Simulator is the world standard for real-time power system simulation and hardware-in-
the-loop testing of control and protection equipment. RTDS Technologies offers an extensive library of
free recorded webinars covering various applications - renewable energy, HVDC & FACTS, smart grid,
and more - and including demonstrations with real equipment. Visit the website below to learn more.

YOUR WORLD IN REAL TIME.

RTDS.COM/WEBINARS
 try to empower some consumers, usually on the magazine website (IEEE Power ket mechanisms mediation. My only
the richer, you risk doing that by putting & Energy Magazine; https://ieee-pes. regret is that energy poverty and jus-
the cost on another, sometimes the vul- org/). In case you are interested to tice, which are highly correlated with
nerable, reinforcing social inequalities know more about how this magazine is market mechanisms and the regulatory
and energy justice problems. This situ- run, you are cordially invited as a guest environment, were not addressed. The
ation is no longer an engineering prob- at the next editorial board meeting to be viewpoints of underdeveloped coun-
lem, of course. held in Orlando, FL, USA, during the tries and indigenous populations who
PES General Meeting scheduled for are often located in off-grid zones were
Leader’s Corner 16–20 July 2023 (https://pes-gm.org/). not discussed. We had a special issue
Vice President of IEEE Power & En- last year (2022 September/October) on
ergy Society (PES) Technical Activities “History” Column smart villages, which is worth reread-
Dr. Hong Chen also serves as the chair In this issue’s “History” column [A10], ing in this respect. However, our fu-
of the PES Technical Council and over- we welcome back Joseph Cunningham ture goal is to put out a dedicated issue
sees PES technical activities. Dr. Chen as he shares with us the insight into on energy poverty and energy equity,
took to the pencil to remind us of the a view of New York City at the early which fits nicely with the last of the
central mission of the council in PES, stages of commercialization of elec- four Ds, i.e., a more democratized and
along with some statistics that make us tric lighting and power systems in an inclusive access to electricity, not only
all proud of our achievements, in terms article titled “City of innovation: NY by empowering the rich consumer but
of reports and standards publications, City at the birth of electrical systems.” also by providing energy access and
that advance the science and technology In this treatment, Cunningham covers energy security to the underprivileged.
in our field. Who remembers that PES technologies, installations, the busi- In addition to energy poverty, I am
is organized into 17 technical commit- ness, and the people of New York City always looking for new topics for spe-
tees and four coordinating committees? in these pioneering early days. cial issues that can be timely and of
Who knows the number of publications interest to a broad audience, including
or the number of downloads from the In Memoriam policymakers. I also welcome new ideas
PES resource center last year (Figure 2), We are sad to report the passing of Dr. for spontaneous articles, which have
broken down by technical committee? Merill Hyde, a past contributor to this nothing to do with any special issue,
This month’s “Leader’s Corner” col- magazine and a leader of our Power In- to give anyone who is interested in this
umn [A9] by Dr. Chen provides some dustry Computer Applications Confer- magazine an equal opportunity to have
facts and insights about PES technical ence for many years. His obituary is his/her views published. Feel free please
activities’ performance to satisfy the included in this issue. At the request of to forward any concerns or questions to
curiosity of the common IEEE mem- many readers, we would like this column me: [email protected].
bers. Dr. Chen further reported on cer- to continue, and therefore, we invite the
tain major initiatives currently under submissions of obituaries through the For Further Reading
implementation, such as the creation of assistant editor desk (sherryvhensley@ “Bright ideas 2022: The future of Canada’s
a new standing committee, the Local- gmail.com). We suggest that authors power and utilities sector.” Deloitte. Ac-
ized Technical Activities Committee, of such an obituary must consider only cessed: Apr. 29, 2023. [Online]. Avail-
under the vice president of technical widely known people in our community able: https://www2.deloitte.com/ca/en/
activities. Working closely with local for their technical or leadership achieve- pages/energy-and-resources/articles/
Chapters, its goal is to encourage more ments or who were benefactors of PES. the-future-of-canadas-power-and-utilities
global participation by mitigating lan- -sector.html
guage and geographic barriers, which Wrap-Up “Plan de développement de reseau.”
some PES members have faced when I want to thank the editors and this Enedis. Accessed: Apr. 29, 2023. [On-
getting involved in formal technical team of authors for their tireless work line]. Available: https://www.enedis.
committee activities. in making this issue happen. Dr. Luis fr/sites/default/files/documents/pdf/
Barroso deserves a special mention be- plan-de-developpement-de-reseau
News From the Magazine cause of his overnight responsiveness -document-preliminaire-2023.pdf
Desktop during the critical and often stressful
We are currently completing the plan- stages of the review cycle, which we Appendix: Related Articles
ning of the 2024–2025 calendar of spe- started in early December 2022. The [A1] J. Loffredo, “Consumer empower-
cial issues. Three special issues were magazine often focuses on the engi- ment lessons from the European
approved at the spring editorial board neering aspects of our discipline. It is Union,” IEEE Power Energy Mag.,
meeting, which was held online on 23 thus more than good news to see this is- vol. 21, no. 4, pp. 98–100, Jul./
March 2023. When the next year’s list sue shedding more lights on “citizens’” Aug. 2023, doi: 10.1109/MPE.
is finalized, the calendar will be posted interactions with the grid through mar- 2023.3269548.

10 IEEE power & energy magazine july/august 2023

[A2] S. Thomas, “Allowing British elec- Aug. 2023, doi: 10.1109/MPE. [A10] J. J. Cunningham, “City of in-
tricity consumers to choose their 2023.3269540. novation New York City at the
supplier: Was it worth it?” IEEE [A9] H. Chen, “Achieving the PES birth of electrical systems,”
Power Energy Mag., vol. 21, no. mission through technical activi- IEEE Power Energy Mag., vol.
4, pp. 18–25, Jul./Aug. 2023, doi: ties,” IEEE Power Energy Mag., 21, no. 4, pp. 81–88, Jul./Aug.
10.1109/MPE.2023.3269543. vol. 21, no. 4, pp. 12–15, Jul./Aug. 2023, doi: 10.1109/MPE.2023.
[A3] G. Cunha, P. Valenzuela, G. Sicilia- 2023, doi: 10.1109/MPE.2023. 3269552.
no, A. M. Gomes, M. Cavaliere, and 3269539. p&e
L. Barroso, “Achieving retail liber-
alization in middle-income coun-
tries: Challenges and successes of
the Brazilian experience,” IEEE
Power Energy Mag., vol. 21, no.
®
4, pp. 26–35, Jul./Aug. 2023, doi:
10.1109/MPE.2023.3269550.
[A4] N. Rossetto, “Beyond individual
active customers: Citizen and
renewable energy communities EASYPOWER® IS NOW
in the European Union,” IEEE
Power Energy Mag., vol. 21, no. PART OF BENTLEY SYSTEMS®
4, pp. 36–44, Jul./Aug. 2023, doi:
10.1109/MPE.2023.3269541.
[A5] E. Beckstedde and L. Meeus,
We con tin ue to offer world-cl a ss
“From ‘fit and forget’ to ‘flex or power system modelin g softwa re
regret’ in distribution grids: Deal-
ing with congestion in European
th at is ea sy to lea rn, ea sy to u s e,
distribution grids,” IEEE Power a nd delivers fa st results.
Energy Mag., vol. 21, no. 4, pp. 45–

Intelligent • Intuitive • Instantaneous

52, Jul./Aug. 2023, doi: 10.1109/
MPE.2023.3269545.
[A6] I.-I. Avramidis, F. Capitanescu,
G. Deconinck, H. Nagpal, P.
Heiselberg, and A. Madureira, Efficient Modeling
“From the humble building to the
· Utility scale and Distributed Generation
· Transmission
smart sustainable grid: Empower-
ing consumers, nurturing bot-
tom-up electricity markets, and · Distribution
building collaborative power sys-
tems,” IEEE Power Energy Mag.,
· Commercial / Industrial
vol. 21, no. 4, pp. 53–63, Jul./Aug. Powerful Analysis
2023, doi: 10.1109/MPE.2023.
· ANSI and IEC Short Circuit
3269538.
[A7] P. Rodilla, P. Mastropietro, and · Protective Device Coordination
P. Brito-Pereira, “The challenge · Power Flow
of integrating demand response:
· Arc Flash - OSHA Compliant Up to 800 kV
Providing a comprehensive theo-
retical framework,” IEEE Power · Harmonics
Energy Mag., vol. 21, no. 4, pp. 64– · Grounding
71, Jul./Aug. 2023, doi: 10.1109/
MPE.2023.3269551.
· And More!
[A8] T. Schittekatte and C. Batlle,
“Assuring a sustainable decar- Try instantly online or download a free demo copy at:
bonization: Affordability op-
tions,” IEEE Power Energy Mag.,
www.EasyPower.com/demo
vol. 21, no. 4, pp. 72–79, Jul./

july/august 2023 IEEE power & energy magazine 11

 leader’s corner
Hong Chen

achieving the PES mission

through technical activities

T
THE POWER AND ENERGY INDUS- maintain the standardization of techni- eBulletin also has technical committee-
try is at its most exciting time, under- cal documents related to the commit- related information, such as upcoming
going many transformational changes: tee’s scopes of activities, including tech- technical committee meetings and newly
transition to clean and sustainable en- nical reports, white papers, and notably published technical reports.
ergy, high penetration of inverter-based IEEE standards.
resources, energy storage, electrifica- Close to 50% of IEEE standards PES General Meeting
tion, and grid edge technologies, just were developed by the PES technical One of the responsibilities of the Techni-
to name a few. Our industry is having committees. In 2022, PES created 47 cal Council is the design and planning of
more innovation than in any generation new standards and revised 36 existing the technical program of the annual IEEE
since Edison, and playing a key role in standards. This year up to March 2023, PES General Meeting (GM), including
combating climate change, facilitating PES created six new standards and re- the planning of the super sessions, panel
decarbonization, decentralization, and vised six existing standards. sessions, technical paper sessions, and
digitization. The IEEE Power & Energy The technical reports, white papers, poster sessions. The conference paper re-
Society (PES), as the world’s largest fo- and webinars produced by PES commit- view is coordinated by the technical com-
rum for sharing the latest in technology tees are archived in the PES Resource mittees and the panel sessions are also
developments in our industry, is well Center. Table 1 shows the technical planned by the technical committees. For
situated to lead the charge towards net- committees with the most products and 2023 PES GM, the following four super-
zero 2050 Table 2 lists the technical committees session topics were selected:
As the vice president of IEEE PES with the most product downloads. ✔ transmission advancement for
Technical Activities, I serve as the All PES members receive monthly decarbonization
chair of the PES Technical Council PES Trending Technology and PES ✔ communications and cybersecurity
and oversee PES technical activities: eBulletin emails. PES Trending Technol- ✔ novel approaches and emerging
lead technical committees for the eval- ogy emails highlight influential industry technologies to support system
uation and dissemination of technical subjects, related papers, articles, presen- operation
information in its field of interests and tations, webinars, tutorials, and which ✔ integration of distributed energy
coordinate with other societies and committee(s) cover the subjects. The resources, electric vehicles, and
professional organizations. “Technical Activities” section of the PES behind-the-meter resources.
The PES Technical Council coordi-
nates the activities of 17 technical com-
mittees and four coordinating commit- table 1. Technical committees with the most products.
tees. The masthead of this magazine Rank Committee Number of Products
has the names of the current committee
chairs. The committee details are avail- 1 Power System Operations, Planning & 100
Economics (PSOPE)
able at each technical committee’s web-
site and from the PES technical activities 2 Energy Development & Power Generation 73
(EDPG)
website (https://ieee-pes.org/technical
-activities/). The committees and their 3 Transmission and Distribution (T&D) 60
subcommittees lead the creation and 4 Analytic Methods for Power Systems (AMPS) 60
Digital Object Identifier 10.1109/MPE.2023.3269539
5 Power Systems Dynamic Performance (PSDP) 51
Date of current version: 21 June 2023

12 IEEE power & energy magazine july/august 2023

 industry-focused panels, increas-
table 2. Technical committees with the most product downloads.
ing utility members to attend
Rank Committee Number of Downloads technical committee meetings,
1 Industry Technical Support 10,936 and increasing practical-oriented
Leadership Committee (ITSLC) conference papers.
2 Power Systems Dynamic Performance 6,823 ✔ Increase global participation: Im-
(PSDP) prove and strengthen our global
3 Power System Relaying and Control (PSRC) 5,130 presence, diversity, and participa-
tion in technical committees by
4 Transmission & Distribution (T&D) 3,452 encouraging virtual technical
5 Power System Operations, Planning & 2,890 committee meetings to enable
Economics (PSOPE) global participation.
✔ Engage young professionals: Re-
cruit young professionals into techni-
Based on these supersession top- Goals for Technical cal committee work, and encourage
ics, the theme for the 2023 PES GM is Activities young professionals to attend tech-
“Meeting the Energy Needs of a Dy- In later 2022, we set the following three nical committee meetings.
namic World.” Our technical commit- goals, aligning with PES’s Strategic
tees also planned more than 140 panel Direction for 2022–2025.
sessions. I look forward to seeing ev- ✔ Improve industry engagement: De- Localized Technical
eryone at this year’s GM, in the cen- velop stronger engagement with Activities
ter of the Sunshine State in Orlando, the industry and increase indus- IEEE PES is a global organization,
Florida, USA. try participation by increasing and technical activities are for all PES

DSATools
Dynamic Security Assessment Software
™

Online DSA
Secure operation of power systems is of
ultimate importance to the reliable supply of
electricity. Our On-line DSA solution can be
integrated with Energy Management
Systems (EMS) to perform Transient,
Voltage, and Small-Signal Dynamic Security
Assessments based on real-time or
forecasted system conditions. On-line DSA
systems based on DSAToolsTM are widely
used in major control centers around the
world, including 8 out of 9 ISOs in North
America. We help TSOs and utilities achieve
significant reliability improvements,
increased renewable energy
accommodation, along with a number of
economic benefits.

Contact us for more information:

www.dsatools.com
[email protected]

july/august 2023 IEEE power & energy magazine 13

 Now Accepting!
Submissions
For The New IEEE Transactions on
Energy Markets, Policy, and Regulation

The rigorously peer-reviewed journal will be

disseminating relevant knowledge and
developments in the organization and
structure of rapidly evolving multi-energy
supply and demand systems.

Learn More & Submit

ieee-pes.org/publications/transactions

Digital Object Identifier 10.1109/MPE.2023.3279507

 members around the world. Due to lan- mittees Organization and Procedures GMs for technical committees
guage and geographic barriers, some Manual was created and approved early by contacting the technical com-
PES members have difficulty getting this year to formalize the process. This mittee program chair.
involved in technical committee ac- effort supports the goal of “increase ✔ Participate in writing standards
tivities. As a result, satellite technical global participation.” or technical reports through tech-
committees were created under Chap- nical committees.
ters Councils. Recently, these satellite Getting Involved in I want to take this opportunity to
technical committees have been moved Technical Activities encourage you all to get involved in
from Chapters Councils to a newly All IEEE PES members can get in- PES technical activities: learn, serve,
created standing committee, the Local- volved in technical committee activities and contribute, help PES further our
ized Technical Activities Committee, through different avenues, such as: mission of “being the leading pro-
under the vice president of technical ✔ Attend technical committee, sub- vider of scientific and engineering
activities. This change brings important committee, working group, and information on electric power and
localized technical activities under the task force meetings. The PES energy for the betterment of society.”
vice president of technical activities, technical activities website and Together, we foster innovation and
to improve governance and interaction PES eBulletin have the upcoming produce solutions for reliable electric-
with technical committees, increase committee meeting information. ity! Together, we work to create clean,
transparency and visibility, as well as ✔ Volunteer to review conference affordable, and sustainable energy so-
provide additional support to local vol- papers, and chair paper or panel lutions worldwide!
p&e
unteers. The Satellite Technical Com- sessions at PES conferences and

Di
gi
ta
l
Co
m
m
un
ic
at
io
n

SCAN ME!

Save up to 50% of your time when

testing circuit breakers
Many of our customers know how time consuming it is to
change the wiring setup several times between the measurements.
Fabiana Cirino
Therefore, we developed a solution, which combines a timing Application Engineer
and travel analyzer, a digital low-resistance ohmmeter and a coil
and motor supply in one device.
We’ve cut down the wiring effort to a minimum, which greatly
reduces the testing time and probability of measuring errors.
This pays off with every CB you test.

omicronenergy.com/cibano500

AD23011-CIBANO-500-7x4,87inch-IEEE-ENU.indd
july/august 2023 1 2023-05-04
IEEE power & energy 13:46:59
magazine 15
 guest editorial
Luiz Barroso and Carlos Batlle

empowering consumers
challenges and opportunities

S
SINCE THEIR INTRODUCTION viders for the system, for example, by pushing British electricity consumers
decades ago, electricity markets have unlocking their flexibility potential to choose their suppliers. He took up
been largely one-sided. In most cases, and thus facilitating the deployment the challenge and delivered an article
end users have not even played the role of renewable energy sources and with good food for thought, particu-
of passive observers of market price making it easier to achieve decarbon- larly for countries considering a retail
fluctuations, they have directly ig- ization targets. liberalization process.
nored them. This idea of giving individuals or It is in this context that the analysis
There are many reasons why this households more control over their en- developed in our second article is set.
has been the case. First, it is not easy ergy consumption, costs, and choices The team led by Cunha [A2] discusses
to change consumer attitudes when has been labeled energy consumer em- the challenges of achieving retail liber-
electricity prices have been the direct powerment. As said, it does not come alization in middle-income countries,
responsibility of governments in one without its regulatory challenges, and using Brazil as an example. Middle-in-
way or another for more than a century. they are the focus of this special issue come countries often have a high pro-
Even today, the European Union (EU) of IEEE Power & Energy Magazine. portion of socially and economically
energy crisis of 2022 is its best exam- Our aim in this issue is to discuss regu- vulnerable consumers, relatively young
ple: when electricity bills skyrocket, latory and market tools and solutions institutions, and immature markets for
consumers look to their governments to optimize end users’ engagement in hedging risk and/or raising finance.
rather than regret not having secured the decarbonization of power systems, In addition, “legacy costs” from 20th
their future price with contracts. But at based on practical experience. This is- century reforms can pose further chal-
the same time, governments and regu- sue features a carefully selected inter- lenges. The article highlights the chal-
lators have been reluctant to expose national group of authors with broad lenges the country is facing on its road
end users to short- and long-term mar- experience from both academia and to full retail liberalization.
ket signals: the costs of demand-side industry, focusing on the regulatory We then deep dive into business
imbalances are generally socialized, and market challenges that lie ahead. models for consumer engagement, ex-
and governments quickly and abruptly We asked them to focus on the chal- amining engagement as a collective
intervene in the markets as soon as lenges that the goal of consumer em- action, where a plurality of consumers
prices reach high levels. powerment poses for regulation and the chooses to act together. This is the con-
However, there is a consensus that barriers that need to be overcome. We cept of energy communities in Europe,
an efficient decarbonization process asked them to be provocative in their the counterparts of community choice
requires the active participation of end writing, to stimulate a pragmatic de- aggregation in the United States. Ros-
users. Providing them with the regula- bate about what has been learned and setto [A3] discusses how energy com-
tory tools, technology, and information what is missing. munities work and illustrates some of
needed to make smart and informed We start searching for lessons from the critical issues that have emerged, as
choices about when and how to con- full retail liberalization. Not many ex- well as the opportunity that the new en-
sume electricity, is then a big challenge. periences exist in which the process ergy reality in Europe may represent.
These regulatory tools should also en- went all the way. The United King- We then focus on the new role of
able end users to become service pro- dom case is undoubtedly a key refer- end users as system service providers.
ence. So, we invited Thomas [A1] to Beckstedde and Meeus [A4] discuss
Digital Object Identifier 10.1109/MPE.2023.3269549
develop his assessment of the benefits the potential of demand-side flexibility
Date of current version: 21 June 2023 of removing regulated end-user tariffs, and how to unlock it, addressing the

16 IEEE power & energy magazine july/august 2023

interactions between decentralized en- ter be protected in a market-based way. liere, and L. Barroso, “Achieving
ergy resources and distribution system They elaborate upon a proactive regula- retail liberalization in mid-
operators (DSO) in the European con- tory-driven solution, named affordabil- dle-income countries: Challeng-
text. DSOs face challenges connecting ity options, to protect (certain tranches es and successes of the Brazilian
these new grid users to their networks, of) end users from periods of sustained experience,” IEEE Power Energy
leading to an increased need for grid high electricity prices. Mag., vol. 21, no. 4, pp. 26–35,
investments and new and complex co- Wrapping up this issue, we invited Jul./Aug. 2023, doi: 10.1109/MPE.
ordination processes. These challenges Loffredo [A8], who represents the Euro- 2023.3269550.
entail potential cost increases but also pean Consumer Organization, to walk [A3] N. Rossetto, “Beyond individual
opportunities for DSOs to manage the talk: that is, to reflect on whether active customers: Citizen and re-
their networks more efficiently. The the current legislation in Europe ad- newable energy communities in the
authors did an outstanding job describ- equately empowers consumers to be- European Union,” IEEE Power En-
ing the need, organization structures, come active participants or not. In the ergy Mag., vol. 21, no. 4, pp. 36–44,
and open issues in congestion manage- “In My View” column, he brings a Jul./Aug. 2023, doi: 10.1109/MPE.
ment in distribution grids. perspective on the status of consumer 2023.3269541.
Based on concepts of nearly zero participation in EU power markets, its [A4] E. Beckstedde and L. Meeus, “From
energy building and smart building, hurdles, and how they can be overcome. ‘fit and forget’ to ‘flex or regret’
Avramidis et al. [A5] analyze a smart We would like to thank the authors in distribution grids: Dealing with
sustainable building archetype. The for the time, dedication, and articles congestion in European distribution
authors, benefitting from the results of provided, which shed light on the key grids,” IEEE Power Energy Mag.,
a multicountry and multiyear interna- topics related to this discussion, which is vol. 21, no. 4, pp. 45–52, Jul./
tional research project, show the po- very relevant. We thank IEEE Power & Aug. 2023, doi: 10.1109/MPE.
tential for smart sustainable building Energy Magazine for the opportunity to 2023.3269545.
applications and the role market prod- reflect on and analyze such challenging [A5] I.-I. Avramidis, F. Capitanescu, G.
ucts and regulation have on it. and relevant matters, which have taken Deconinck, H. Nagpal, P. Heisel-
We complete the review by tackling us out of our comfort zones and made berg, and A. Madureira, “From
the long-term dimension. Empowering us reflect on them as well. We thank the humble building to the smart
customers necessarily requires expos- the editor-in-chief, Innocent Kawma, sustainable grid: Empowering con-
ing them not only to short-term but also for continuing to provide the conditions sumers, nurturing bottom-up elec-
to long-term price signals. The essential for IEEE Power & Energy Magazine to tricity markets, and building col-
nature of the electricity service implies remain an IEEE flagship publication. A laborative power systems,” IEEE
that this process cannot be realistically special thank you goes to the past edi- Power Energy Mag., vol. 21, no.
undertaken without designing the nec- tor-in-chief, Steve Widergren, who sup- 4, pp. 53–63, Jul./Aug. 2023, doi:
essary safeguards against extreme price ported our proposal and gave us all the 10.1109/MPE.2023.3269538.
scenarios. With this in mind, we re- conditions to improve it through fruitful [A6] P. Rodilla, P. Mastropietro, and
quested Rodilla et al. [A6] to draw regu- discussions with the magazine board P. Brito-Pereira, “The challenge
latory recommendations for the partici- members. And, last but not least, thanks of integrating demand response:
pation of demand resources in capacity go to all reviewers and the IEEE edito- Providing a comprehensive theo-
mechanisms. They identified all poten- rial staff, for their usual brilliant work. retical framework,” IEEE Power
tial participation modes, highlighted With these articles, we aim to give a Energy Mag., vol. 21, no. 4, pp. 64–
the inefficiencies that could arise from contribution to the important debate of 71, Jul./Aug. 2023, doi: 10.1109/
certain designs, and provided guide- how to foster the active participation of MPE.2023.3269551.
lines for regulators who are currently end users in power markets. We hope the [A7] T. Schittekatte and C. Batlle, “As-
addressing this type of mechanism. reader enjoys the reading as we enjoyed suring a sustainable decarboniza-
We could not complete a discussion planning and organizing this issue. tion: Affordability options,” IEEE
about consumer empowerment with- Power Energy Mag., vol. 21, no.
out tackling the severe energy crisis Appendix: Related Articles 4, pp. 72–79, Jul./Aug. 2023, doi:
Europe has faced since the summer of [A1] S. Thomas, “Allowing British elec- 10.1109/MPE.2023.3269540.
2021. Governments intervened in mar- tricity consumers to choose their [A8] J. Loffredo, “Consumer empow-
kets and spent billions of euros to shield supplier: Was it worth it?” IEEE erment lessons from the Euro-
consumers and industry from high elec- Power Energy Mag., vol. 21, no. pean Union,” IEEE Power Energy
tricity prices. Schittekatte and Batlle 4, pp. 18–25, Jul./Aug. 2023, doi: Mag., vol. 21, no. 4, pp. 98–100,
[A7] reflect on the European energy 10.1109/MPE.2023.3269543. Jul./Aug. 2023, doi: 10.1109/MPE.
crisis and the overall market design, [A2] G. Cunha, P. Valenzuela, G. Si- 2023.3269548.
p&e
and on how consumers should hereaf- ciliano, A. M. Gomes, M. Cava-

july/august 2023 IEEE power & energy magazine 17

 Allowing
British Electricity
Consumers to
Choose Their
Supplier
Was it Worth It?

By Steve Thomas

I
IN 1990, BRITAIN WAS A PIONEER OF THE PACKAGE
of measures for the electricity industry, variously described
as privatization, liberalization, and marketization: in short,
the British model. Britain has often been seen as the example
other countries should follow. The vision of the proponents of
this package of measures was that, in a competitive sys-
tem, electricity could be bought and sold efficiently
in the same way as other products, with no need for
sector-specific regulations. However, 30 years later,

Digital Object Identifier 10.1109/MPE.2023.3269543 ©SHUTTERSTOCK.COM/ ALEXLMX

Date of current version: 21 June 2023

18 IEEE power & energy magazine 1540-7977/23©2023IEEE july/august 2023

this vision seems no nearer to being achieved. The current and reduction in coal generation, as shown in Figure 1. In
dominance in this sector of climate change considerations the first quarter (Q1) of 2022, 43% of the electricity supply
over economic efficiency means the market cannot be left within the United Kingdom was produced by renewables.
alone to function. So, this vision will not be achieved in the
short- to medium-term. The Competitive Wholesale
Electricity Market
Introduction The promise that a competitive market would produce lower
To understand why the vision of a fully competitive elec- prices than a regulated monopoly was the rationale for the
tricity market has not been achieved in Britain, we look at liberalization package: without a competitive market there
the elements of the reforms, especially those that involve would be little for a field of retailers to compete over; with-
competition. We then look at developments since 2021 when out competition, there would be no reason to unbundle the
high gas prices put a spotlight on the way the sector operated networks; and there is a need for regulation regardless of
and exposed failings. whether there is competition.
By 2002, the British electricity sector appeared to have The wholesale market, or power exchange, has a spot
met the requirements of the ideal model: market and a range of instruments, such as futures and deriv-
✔ A wholesale market had existed since 1990. atives. Prices in the spot market are set every 30 min with
✔ Consumer choice was extended to all by consumers the price being set for all successful bidders by the high-
by 1999. est price paid needed to meet demand. If generators have a
✔ A generation duopoly had been broken up and there hedging contract and need to generate to fulfill it, they need
were six major competing generators. not bid; they merely need to inform the system operator of
✔ There were six large competing energy retailers. their intention to generate in the given 30-min period.
✔ Networks had been unbundled from ownership of By 2010, the sector was dominated by six integrated
competitive activities in the sector. generator–retailers, widely known as the Big Six. Most of
✔ A regulatory body, the Office of Gas & Electricity the power they generated was transferred internally to their
Markets (Ofgem), had been set up. retail divisions with a small amount sold under long-term
By February 2010, the government and the regulator agreed contracts on terms known only to the two parties. This left
the existing system was not working and was not going to work. negligible quantities available for the power exchanges.
The Energy Minister said: “We are going to need a more inter- This integration meant that the Big Six could make easy
ventionist energy policy,” while the Chief Executive of Ofgem profits by keeping prices high with no need for more than
said: “There is an increasing consensus that leaving the present tacit collusion. The lack of a liquid spot market meant they
system of market arrangements and other incentives unchanged were secure from entry by new generators and retailers who
is not an option.” As a result, a three-year government review, might challenge this cozy existence. As a result, by 2013, the
the Electricity Market Reform, was undertaken, leading to a Big Six had a lower level of public trust even than the Brit-
package of measures intended to address the issues. ish banks. However, the lack of new entrant retailers gave
This article focuses on the period from 2013 onward consumers no avenue to action their dissatisfaction, and the
when the electricity market reforms were implemented. market share of the Big Six with small consumers was still
There is particular emphasis on the period since 2021, 97% in 2014.
when rising gas prices caused major problems of Two developments changed this situation. New capacity
welfare and survival of businesses and brought the was overwhelmingly renewables, paid at fixed prices out-
industry structure and mechanisms into the spotlight. side the market. Renewable capacity is built based on the
The British government has brought in a range of outcome of capacity auctions run by the government. Win-
short-term subsidies and payments to try to ning bids are given contracts of 15 years or more to buy
ensure that consumers are able to afford all their power at fixed real prices. There was no strategic
enough energy to ensure their wel- advantage to the Big Six in owning a plant built based on
fare. These measures are temporary; capacity auctions because all its output had to be sold to a
they do not have a long-term impact government entity, so it could not be used to meet its own
on the market and are not discussed consumers’ demands.
in this article. The “Secure & Promote” market liquidity program was
The United Kingdom electric- introduced in 2014. This program required the Big Six to
ity system is undergoing a period of post bids and offer prices in the power exchanges for a range
significant change as it transitions from of contracts up to two years ahead, for two one-hour trading
a fossil fuel-dominated generation mix to windows each day. This policy immediately made the power
intermittent renewable generation. Over exchanges liquid and opened the way for many new retail
the past few years, we have seen a marked companies to buy at apparently reliable prices and offer
increase in output from wind and solar farms power to small consumers at prices that undercut the Big

july/august 2023 IEEE power & energy magazine 19

 In a competitive system, electricity could be bought and
sold efficiently in the same way as other products, with no
need for sector-specific regulations.

Six. These liquidity measures seemed to be successful, and close it. While the focus was on peak plants, capacity pay-
by the time the gas crisis began to be felt, new suppliers had ments are payable to enough dispatchable plants: that is,
a market share of about 25%. plants that are available to generate regardless of weather
Capacity auctions and liquidity measures meant the ad- conditions, to meet expected peak demand. They were
vantages of integration of generation and retail disappeared expected to be enough to justify keeping a peaking plant
and, by 2019, five of the Big Six had split into separate gen- online even if it was not used at all. Capacity payments are
eration and retail companies. The Big Six integrated com- not available to capacity covered by take-or-pay contracts
panies became the Big Five retailers, with two retailers with the government.
merging their businesses. The liquidity measures were aban- While these three measures had a clear rationale, they over-
doned because the market power of integrated companies, rode market mechanisms and compromised the efficiency of
which was the justification for applying liquidity measures, the market. Market signals should determine entry and exit to
no longer existed. the market, and companies should participate in the spot market
A third measure was the introduction of capacity pay- because it is to their advantage, not because they are forced to.
ments. These payments were intended to ensure there was
sufficient generation to meet peak demand. The assumption The Competitive Retail Market
under the power exchanges was that just enough capacity to From 2002 onward, the level of switching among small con-
meet peak demand reliably would be profitable enough to sumers was higher than in most European Union countries,
justify the owners keeping it in service. This assumption was albeit only a few percent per year, but most British consum-
not credible. Peak demand is weather-dependent, and peak- ers still did not switch. As a result, by 2014 about 97% of the
ing capacity needed in a cold winter would not be needed retail market for small consumers remained in the hands of
in most years, would earn no income, and its owners would the Big Six.
The liquidity measures led to
new entrant retailers increasing
their market share to 14% in 2016,
Electricity Generation Mix By Quarter and Fuel Source resulting in the Big Six deintegrat-
120
ing. Despite this and despite their
100 unpopularity, the brand name of
these companies compared to that
80 of the new retailers gave them sig-
Twh by Quarter

nificant market power, with many

60 consumers reluctant to shift away
from an established name to a com-
40 pany with unknown credentials.
The business model of the new
20 retailers was to buy options on the
power exchange typically for a
0 year forward, and then undercut
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022

the Big Five in the residential con-

sumer market. Their selling point
was their price, and they relied on
Coal Gas price comparison websites to flag
Nuclear Wind and Solar them as cheap. The risk with this
Bioenergy Net imports (Interconnectors) strategy was that when they came
Hydropower (Including Pumped Storage) Other Fuels (Including Oil)
to renew power purchase con-
tracts, if the wholesale price was
figure 1. Electricity generation mix. (Source: Department for Business, Energy, and too high to be recovered from their
Industrial Strategy, Energy Trends, and Ofgem.) consumers, they would collapse.

20 IEEE power & energy magazine july/august 2023

 Market signals should determine entry and exit to the market,
and companies should participate in the spot market because
it is to their advantage, not because they are forced to.

Hedging strategies were a luxury they could not afford. consumers could switch but in practice it was not easy, and it
Together, internal and external switching rates provide a was difficult to find cheaper deals. A Competition and Mar-
more comprehensive indicator of how engaged consumers kets Authority’s investigation in 2016 found that the cheapest
are in the domestic retail energy market. Figure 2 shows that available prepayment deals were £260 to £320 a year more
internal switching rates among the six largest suppliers have expensive than those available for direct debit households,
been consistently higher than external switching rates. the consumers who received the cheapest tariffs. High energy
By 2017, public dissatisfaction remained because, while prices in 2022 led to an increase in prepayment meter con-
new entrants had taken a significant share of the market, sumers of about 10,000 consumers per month.
the majority remained with the Big Six, at best on a fixed The price caps were intended to deal with a real prob-
duration contract (more expensive than those offered by lem, but their use overrode the market and inevitably further
new entrants) and at worst on the default standard variable reduced its efficiency.
tariff, invariably the highest tariff available. In addition,
more than 15% of consumers used prepayment meters also Developments Since 2021
at high prices. The high prices paid by the standard vari- By selling off generation, the Big Five had lost some of their
able tariff and prepayment meter consumers meant the market power but their brand names still gave them strong
companies were seen as exploiting the loyalty and inertia advantages. The withdrawal of the liquidity measures raised
of the standard variable tariff consumers and exploiting the issue of whether the market would remain liquid if there
the difficulty for prepayment meter consumers of switch- was no obligation to use it, or whether generators would seek
ing to a better deal. the financial security of long-term contracts outside the mar-
As a result, a temporary price cap set by the regulator for ket. Regardless, the wholesale electricity market appeared
prepayment meter consumers was introduced in 2017 and likely to wither away as fossil fuel generation was replaced
for standard variable tariff consumers in 2019. The cap was by low-carbon sources commissioned by government and
initially to apply until 2020 when it was assumed that “smart sold at nonmarket prices.
meters” would have been installed with nearly all consum-
ers. Smart meters were expected to make switching much
simpler and would obviate the need for the price cap because Large Suppliers: Internal and External
consumers would switch away from expensive suppliers. Switching Rate by Fuel Type
8
The target completion date for smart meter installation has
7
continually slipped and was pushed back to mid-2025 in
Switching Rate (%)

6
August 2021, and the cap has been renewed annually.
5
The widespread use of prepayment meters is a particular
4
feature of the British reforms. In 2016, about 16% of consum-
3
ers used them. Their use dates to 1993, when policy became
2
that consumers struggling to pay their energy bills had little
1
choice but to switch to prepayment meters. In some cases,
retail suppliers break into consumers’ premises to replace 0
November-14
February-15
May-15
August-15
November-15
February-16
May-16
August-16
November-16
February-17
May-17
August-17
November-17
February-18
May-18
August-18
November-18
February-19
May-19
August-19
November-19

the standard meter with a prepayment meter. From a very

low base, the number of consumers on prepayment meters
increased to about 15% in only a year. From an industry
point of view, prepayment meters were an ideal solution to
the issue of consumer debt. With a prepayment meter, con- Electricity Total Internal Switching Rate
sumers that could not afford to buy energy cut themselves Electricity Total External Switching Rate
off, so there was no possibility of further debt. Companies Gas Total Internal Switching Rate
were allowed to recover debt as a per kilowatt hour surcharge Gas Total External Switching Rate
on new consumption by the consumer, and meter reading
and billing costs were reduced. Like other retail tariffs, pre- figure 2. Switching rates (internal and external). (Source:
payment meter tariffs are unregulated. Prepayment meter Ofgem.)

july/august 2023 IEEE power & energy magazine 21

 The Price Cap significant proportion of its supplies from the United King-
The price cap was to be set based on costs in the previous six- dom sector of the North Sea; it has pipeline connections to
month period, so there was a built-in lag between increases Norway, The Netherlands, and Belgium; and it has three
and decreases in market prices and changes in consumer liquified natural gas terminals that allow it to import liqui-
prices. The cap meant prepayment meter and standard variable fied gas. While it received negligible quantities of gas from
tariff consumers could not be charged more than the price cap. Russia, its strong connections to Europe mean the United
However, given that most of the consumers affected had either Kingdom must pay world gas prices and it is at risk of gas
shown little appetite for switching or there was little scope shortages. The high gas prices are a strong incentive to gas
for them to switch, the price cap quickly became the level set producers to increase supplies, and additional supplies to
for virtually all standard variable tariff and prepayment meter Europe from the United States and Norway have allowed
tariffs. The market for small consumers not on prepayment Europe to reduce its dependency on Russia for gas from
meters could be divided into three: those on standard variable about 40% to less than 10%.
tariffs with the Big Five, those on fixed price and duration
deals with the Big Five, and those on fixed price and dura- Failures Among Energy Retailers
tion deals with the new entrants. The price cap initially had no Figure 3 shows there were 24 active suppliers in the domes-
impact on the new entrants because their consumers were all tic gas and electricity retail markets as of June 2022. This
on fixed price and duration tariffs. number included 21 suppliers active in both gas and electric-
ity, two in gas, and one in electricity only.
The Market for New Generation The gas price rises coincided with the failure of about
The offshore wind capacity auction program proved suc- 30 of the new energy retailers. However, about one-third
cessful, with prices falling from about £150/MWh in 2014 of failures happened before gas price rises set in. It is dif-
to less than £40/MWh in 2021. With projections that the ficult to determine how far these early failures were down
electricity sector could be decarbonized by the mid-2030s, to normal company failure or failure to be able to renew
the prospect was that, within a decade, most power would power purchase contracts at costs they could recover. If
be accounted for by renewables sold entirely outside the the latter, how far was this down to the withdrawal of the
market to a government entity, which would sell it on to liquidity measures?
retailers who would be obliged to buy their share at cost, Many of the failed companies had fewer than 100,000
based on their market share. Increasingly retailers are los- consumers; 14 had between 100,000 and 600,000 consum-
ing control of their power purchasing. ers but the largest, Bulb, had 1.7 million consumers. For
consumers, there was no interruption in service when a sup-
Gas Price Rises plier collapsed. When a company fails, there is a bidding
In 2021, the world gas wholesale price rose by about 400%. process with other companies stating how much they would
These high prices were exacerbated by Russia’s invasion pay or need to be paid to take on the consumers. In most
of Ukraine, which led to Russia reducing gas supplies to cases, the new company was one of the Big Five and trans-
Europe. From the point of view of diversity of gas suppliers, ferred consumers would go on to the standard variable tar-
the United Kingdom is in an enviable position. It receives a iff. While taking on these consumers would increase their
market share, it would require the new company to procure
additional power from a difficult market. Because these
consumers were with new entrant companies, by definition
Number of Active Domestic Suppliers by Fuel Type
80 they were likely to be cost-sensitive, and if the new com-
Gas Only pany does not offer a cheap deal, the consumer is likely to
70
Gas and Electricity switch. Increasingly, replacement suppliers had to be paid
Number of Suppliers

60 Electricity Only to take on the failed company’s consumers, a charge that

50 Total fell on consumers.
40 The size of Bulb made its rescue problematic. It collapsed
30 in November 2021 and was placed in special administration
20 and allowed to continue trading, with loans from the govern-
10 ment expected to cost taxpayers about £4 billion. In October
2022, a new entrant company, Octopus, was reported to be
0
paid £1 billion to take on Bulb’s consumers.
December-04
December-05
December-06
December-07
December-08
December-09
December-10
December-11
December-12
December-13
December-14
December-15
December-16
December-17
December-18
December-19
December-20
December-21
June-22

The standard variable tariff doubled in 2022, with more

rises expected. Cheap fixed-price deals have been withdrawn
and consumers have had to move on to the standard variable
tariff as their existing fixed-price deal expires. So, the United
figure 3. Number of active suppliers. (Source: Ofgem.) Kingdom now has many competing retailers all offering the

22 IEEE power & energy magazine july/august 2023

 Additional supplies to Europe from the United States and
Norway have allowed Europe to reduce its dependency
on Russia for gas from about 40% to less than 10%.

same price. Effectively, retail prices for households are set by main drivers of the gas price increases relate to low gas
the price cap, not the market. storage levels across Europe and lower-than-usual pipeline
imports from Russia into Europe.
The Wholesale Market
There has been criticism of the wholesale market and the The Regulator
extent to which its design has contributed to the high whole- The regulator, Ofgem, has failed to deal with long-running
sale electricity prices. The price is set by the highest price problems. These include the following:
producer needed to meet demand and all successful bidders ✔ Prepayment consumers: These consumers were ex-
can sell at about that price even if their costs are signifi- ploited by the retail suppliers for two decades until, on
cantly lower. The rationale for this model is that high prices the instruction of the Competition and Markets Au-
should motivate generators that can produce at less than the thority, Ofgem introduced a price cap in 2017.
market price to build new capacity, earning them attractive ✔ Market liquidity: For the first two decades after the
levels of profit. So, generators might earn extra profits when reforms were implemented, the wholesale market was
the market is tight but might not cover their full costs when too illiquid for it to perform any useful function. On
there is surplus capacity. the instruction of government, in 2014 Ofgem forced
Concern exists that the price is being set by high-priced gas liquidity into the market, allowing large numbers of
and that other producers that have lower costs are receiving new entrant retail suppliers to enter the market.
large profits that they have not earned. However, since 2020, ✔ Ofgem’s failure: Ofgem’s failure to properly assess
the United Kingdom wholesale market has been behaving the credentials of the new entrant retailers was ex-
in the way it was designed to with the price set by gas-fired posed from 2019 onward, resulting in the collapse
generation, with all producers that bid into the market getting of about 50 companies imposing huge costs from
that high price. Gas accounts for about half of generation, with switching the failed companies’ consumers to a
the rest covered by renewables at 30% and nuclear at 15%. new supplier.
Gas generators are paying high
gas prices and will need the high
wholesale electricity prices to Electricity and Gas Prices:
Day Ahead Baseload Contracts-Monthly Average
cover their costs. Most renewables
400 400
are sold at prices independent of
the market price, so they are not 350 350
earning any more than normal.
Electricity Prices-GBP/MWh

Nuclear is technically and eco- 300 300

Gas prices-GBP/therm

nomically inflexible and expos-

ing it to market prices would be 250 250
risky, and it is sold mainly under
200 200
hedging contracts. It would there-
fore appear that generators are 150 150
not making excessive profits. The
market is working as it is designed 100 100
to do and the problem is choice of
50 50
market design, not market failure.
Figure 4 shows the day-ahead 0 0
electricity and gas baseload con-
January-12
June-12
November-12
April-13
September-13
February-14
July-14
December-14
May-15
October-15
March-16
August-16
January-17
June-17
November-17
April-18
September-18
February-19
July-19
December-19
May-20
October-20
March-21
August-21
January-22
June-22

tracts, which mirror the price

evolution in their spot markets.
Factors influencing power prices
include gas prices, carbon prices,
and renewable generation. The figure 4. Power and gas day-ahead contracts. (Source: Ofgem.)

july/august 2023 IEEE power & energy magazine 23

 There is no sign that Ofgem has under- higher level of demand response to accommo-
stood that the switch from fossil fuel date the variability of renewables and the
generation to low-carbon generation inflexibility of nuclear, but this must not
will need a fundamental change be at the expense of consumer welfare.
in the design of the sector. The second point seems common
sense, that variable renewable sources
The Future will need to be complemented by
While it is difficult to predict storage capacity. The third point
when the war in Ukraine will fin- is the only one that seems directly
ish, it will be a long time before related to the crisis of 2022. However,
Russia will be trusted by Europe as as argued above, the wholesale market
a supplier of natural gas. Neverthe- is working as it was designed to do and
less, there are several factors that mean it would require a comprehensive rede-
the current high United Kingdom energy sign to achieve what the government wants.
prices will fall relatively soon. On the supply Renewables at nonmarket prices are taking an
side, the high world gas price is motivating sup- increasing share of the market and the influence of the
pliers to produce as much as they can. On the demand side, gas price on the wholesale power price is declining. If targets
consumers are cutting their consumption to a bare minimum to decarbonize the electricity sector are met, the gas price will
to ensure their bills are affordable. These two factors should have little influence within a few years. It is questionable whether
significantly reduce electricity prices. Renewable capacity, at designing a short-term fix to the market is worth it.
prices not related to gas, is expanding rapidly (more than 3
GW of off-shore capacity came online in 2022), replacing gas, Policy Priorities
and reducing the influence of gas prices on electricity prices. The most serious policy barrier may be the political and
commercial difficulty of replacing market mechanisms with
Review of Electricity Market Arrangements planning mechanisms. It will be difficult to convince con-
In July 2022 the government announced a new review. sumers they are better off with a well-regulated monopoly
Despite government claims it would be the “biggest elec- than a competitive market. There are also many powerful
tricity market reform in a generation,” judging by the three bodies, such as energy retail companies, commodities trad-
areas identified as likely to be addressed, this reform is less ers, and price-comparison websites that have a strong inter-
ambitious than electricity market reforms of only a decade est in retaining competitive markets, even if they are not in
ago. The retail side of the business is mostly not covered, the interests of consumers.
despite the issues raised by the increasingly criticized price
cap and despite the fall-out from the large number of retail The Wholesale Market
supplier collapses. The government identifies the following The current wholesale market is not fit for purpose if it ever
three areas for reforms: was, so the priority must be to design a set of mechanisms that
1) introducing incentives for consumers to draw energy will ensure sufficient new low-carbon capacity is built to meet
from the grid at cheaper rates when demand is low or any demand growth and replace retired plants, and ensure suf-
it is particularly sunny and windy, saving households ficient existing capacity remains available when needed.
money with cheaper rates Market optimists believe that, as renewable technology
2) reforming the capacity market so that it increases the matures, a well-designed competitive wholesale market will
participation of low carbon flexibility technologies, meet these conditions. However, such a market has never
such as electricity storage, which enable a cleaner, existed for fossil fuel generation and, because of their high
lower-cost system upfront costs, low-carbon sources seem less likely to fit into
3) decoupling costly global fossil fuel prices from elec- such a market design. Capacity auctions have proved success-
tricity produced by cheaper renewables, a step to help ful in reducing renewables prices. There are strong competitive
ensure consumers are seeing cheaper prices because forces on the bidders but there is full public control. Major chal-
of lower-cost clean energy sources. lenges exist ahead. Up to now with renewables a minority part
The first area foreshadows the use of smart meters to allow of the generation mix, take-or-pay contracts have been suitable,
time-of-day pricing, under which the price paid by consumers but as renewables’ market share increases, there will need to be
would vary according to the price of the marginal generation flexible contracts that recognize that not all the available power
source. Time-of-day pricing raises a serious issue of welfare. can be used, while still giving developers sufficient guarantee of
Prices will be highest when demand is highest and when con- their income to justify the investment costs.
sumers need power most. If consumers see a high price, they Capacity payments may need to be retained but they are
are likely to cut back demand for applications, like heating and not suitable in their present form under which only dispatch-
cooking that are vital for their welfare. There will need to be a able sources are eligible. Mechanisms must be designed so

24 IEEE power & energy magazine july/august 2023

that variable renewable sources can receive incentives to How Will It Be Possible to
remain in service after their initial power purchase agree- Remove Competition?
ments have expired. There is a growing consensus that the existing electricity
industry structure needs a major overhaul, and the logic is
Retail Competition that the wholesale and retail competition markets will, at
The economic case for retail competition is weak. Without most, be a minor element in the new design. Removing com-
a competitive wholesale electricity market that would allow petition will not be easy. Strong vested interests to retain
retailers to buy more cheaply than their competitors, there markets exist from organizations that are there because of
would be nothing for competing retailers to compete on competition. Politicians of all persuasions have peddled the
other than their own costs. Network costs will be the same philosophy that competition for all purchases was the best
for all retailers. answer, so telling consumers they would be better off with a
The costs of retail competition are significant. These planned system will not be easy.
include: the loss of scale economies because of the duplica-
tion of functions not needed in a monopoly, the cost of mar- What Role for Regulation?
keting and switching, and the cost to consumers when retail In 2000, the prime duty of Ofgem was changed from pro-
suppliers collapse. moting competition to protecting the interests of consum-
The high prices of 2021/2022 and the collapse of more ers. However, the mentality of Ofgem still seems to be that
than 30 retailers will have damaged the credibility of the sec- a free market is always the best answer, and if left alone,
tor. Consumers of collapsed companies are dumped on to the market will automatically solve any problems. Regu-
another supplier in which they had no choice, usually with latory interventions are seen as counterproductive and a
higher prices. There is also the farcical situation of large last resort. It seems likely that this mentality can only be
numbers of companies to choose between, all of which are changed by a fundamental rebuilding of the organization
offering the same price. The energy retail business has been that breaks this mentality.
revealed to be fragile and it is not clear there will be any
appetite to back new companies entering the market. So, What Are the Alternatives?
the market may subside back into a small number of retail- Britain has, for several decades, been in an enviable position
ers under little threat of competition from new entrants. with respect to energy resources. From the mid-1970s until
around 2000, it was self-sufficient in coal, oil, and gas. It
In Summary now has a range of cheap renewable resources, especially
The problems experienced from 2021 onward raise several offshore and onshore wind, and solar energy. The new sys-
questions. tem should be designed to take advantage of these resources
rather than the resources fitted into a one-size-fits-all model.
Do Consumers Want to Choose an
Electricity Supplier? Was Allowing Consumer Choice Worth It?
The assumption behind allowing consumers choice of sup- The simple answer is “no.” It has been a costly waste of time
plier was that consumers would grasp the opportunity to and money.
switch to the cheapest supplier. This choice would ensure
their bills were as low as possible and force suppliers to buy For Further Reading
from the wholesale market cheaply, increasing competitive “High energy prices,” ACER, Ljubljana, Slovenia, Oct. 2021.
pressure in that market. While Britain has a higher consumer [Online]. Available: https://acer.europa.eu/en/The_agency/
switching rate than most countries, a majority remains on Organisation/Documents/Energy%20Prices_Final.pdf
expensive tariffs. There are several factors behind this iner- “Proposal for a Council Regulation on an electricity
tia, such as lack of confidence in their ability to find the best emergency tool and a solidarity contribution of the fossil
deal, distrust of the market, and lack of time. Hard-pressed, sector,” European Commission, Brussels, Belgium, COM
low-income consumers have done badly from the option, (2022), 2022.
facing high tariffs that effectively pay for the benefits of S. D. Thomas, “Is the ideal of independent regulation ap-
those with the resources to switch. propriate? Evidence from the United Kingdom,” Competi-
tion Regulation Netw. Ind., vol. 20, no. 3, pp. 218–228, Sep.
Could Markets Have Worked? 2019, doi: 10.1177/1783591719836875.
Under the British model, sufficient new power plants to ensure
security of supply would be built prompted only by market Biography
signals. This situation never happened when fossil fuel plants Steve Thomas is with the Business School, University of
were still an option. The high upfront costs of low-carbon Greenwich, SE10 9LS London, U.K.
sources make it less likely that developers will take the risk of
p&e
investing in new capacity with no guarantee of income.

july/august 2023 IEEE power & energy magazine 25

 Achieving Retail
Liberalization in
Middle-Income
Countries
Challenges and Successes
of the Brazilian Experience

E
ELECTRICITY MARKET LIBERALIZATION INITIATIVES
have swept the world since they were first proposed and thoroughly
studied in the 1980s, finding significant buy-in from middle-income
countries. Many of these countries embarked in the wave of elec-
tricity liberalization in the 1990s following the United Kingdom’s
market reform and have, as of today, successfully implemented
wholesale competition. Generally speaking, most middle-income
countries have interrupted the process before reaching full retail
liberalization, and thus consumer choice is still mostly restricted to
industries. The technological and social advances of decarboniza-
tion, decentralization, and digitalization have brought back the full
retail liberalization agenda so that consumers can be empowered to
freely select their own supplier, type of energy, and hence be active
players in the power market.
The core challenges of retail liberalization that policymakers
need to tackle are well known, among which it is possible to high-
©SHUTTERSTOCK.COM/ POPTIKA

light the following:

Digital Object Identifier 10.1109/MPE.2023.3269550

Date of current version: 21 June 2023

26 IEEE power & energy magazine 1540-7977/23©2023IEEE july/august 2023

 By Gabriel Cunha , Paula Valenzuela,
Gisella Siciliano, Angela Magalhães Gomes,
Mateus Cavaliere, and Luiz Barroso

✔ increasingly active clients of all consumer classes ✔ immature marketplaces for hedging against risks and/
✔ novel business models or procuring financing
✔ growth of distributed energy resources ✔ “legacy” costs from the reforms of the 20th century
✔ the need to accommodate new types of agents may impose further challenges to liberalization.
✔ ensuring a fair treatment of both newcomers and al- Brazil in particular is a fascinating case study. The coun-
ready existing players. try has historically relied on large-scale centralized generation
Middle-income countries in particular face all of these (mostly hydropower) but recently has seen increased initiatives
challenges while also facing for distributed energy resources, highlighting the fundamental
✔ a high proportion of socially and economically vul- role of consumer choice in the electricity market. As a conse-
nerable consumers quence, retail liberalization is being discussed in the country
✔ relatively young institutions via legal and infra-legal pathways. In this article, the Brazilian
conjuncture, constraints, and
successes along the way to-
ward retail market liberaliza-
tion are used as a backdrop
for a broader discussion that
can apply to a range of mid-
dle-income countries facing
similar challenges.

Highlights of
the Brazilian
Context and Retail
Liberalization
This section introduces the
Brazilian regulatory context,
existing initiatives toward full
retail liberalization, and the
options available to smaller
“regulated consumers” that
allow them to de facto choose
a supplier to some extent.
Finally, we draw attention
to the socioeconomic com-
plexities of the country as an
important background for the
challenges faced.

Recent Liberalization
Efforts in Place
Large Brazilian consum-
ers may opt to participate
in the free market and have
the freedom to choose their
suppliers; in contrast, “regu-
lated consumers” must be
supplied by the concession
holder in the area where

july/august 2023 IEEE power & energy magazine 27

 The country has historically relied on large-scale centralized
generation (mostly hydropower) but recently has seen increased
initiatives for distributed energy resources.

they are located (i.e., the distribution companies or Distcos). their electricity management. Indeed, even in the context of
The Brazilian free market accounts for 35% of the country’s the regulated market, consumers have been empowered to
consumption and is currently fully accessible to consumers make some level of choice with regards to electricity supply,
who have a peak load of at least 1 MW. Special rules exist which has been used as an argument for full retail liberal-
that apply for consumers with a peak load of at least 0.5 MW ization in the discussions. The options available to regulated
who purchase energy from nonconventional renewable gen- consumers are discussed next.
eration sources (wind, solar, small hydros, and bioenergy,
known as incentivized energy). From 1 January 2024, the Regulated Consumers Being Not so Regulated
free market will be expanded, and any consumer connected Even though regulated consumers cannot choose their
to the system at a voltage level of 2.3 kV or more will be eli-retailer, over the years the rules governing this market have
gible to access it and, hence, bilaterally negotiate its supplyprovided regulated consumers menus of options they could
contracts from any source. Consumers may always choose to choose from, representing some level of de facto liberaliza-
continue to be supplied by regulated tariffs in a distribution tion. Coupled with technological advancements and cheaper
company if they prefer. control equipment, these regulatory initiatives have been
In 2022, a public consultation was launched propos- enabling regulated consumers to arbiter between the regu-
ing full retail liberalization: that is, encompassing the lated tariff and other supply options.
segment of low-voltage consumers, connected at voltage The first layer of freedom that regulated consumers have
levels below 2.3 kV. According to this proposal from the is to play with the tariff structure. As illustrated in Table 1,
Ministry of Energy, most low-voltage consumer classes low-voltage consumers can opt for the conventional tariff
(including commercial services and public services) would (flat) or for the “white” tariff (peaked), whereas high-volt-
be able to opt for the free market from 1 January 2026, age consumers can opt for the “blue” tariff (flat) or for the
while rural and residential consumers would also have “green” tariff (peaked). More accurately, only medium-
access to this choice from 1 January 2028. A bill (number voltage consumers up to 69 kV have the choice between the
414/2021) is also being discussed in the Brazilian parlia- green and the blue tariff (not all high-voltage consumers),
ment for the same purpose. Government institutions have and the blue tariff is in fact not quite “flat” (though signifi-
shown with these initiatives that they are indeed commit- cantly flatter in nature than the green tariff). These available
ted to the idea of liberalization, while at the same time choices are, in essence, standard time-of-use tariff designs,
conceding that there are obstacles that will need to be sur- which should allow consumers that have a greater propensity
mounted, particularly with regards to the level of cross- to respond at peak hours to opt-in, while shielding consum-
subsidies and distortions currently present in the Brazilian ers that are not interested.
electricity sector. A direct consequence of the time-of-use tariffs is that
The topic of full retail liberalization has been under dis-consumers will follow the incentives set by the mechanism
cussion in Brazil since at least 2015, in line with interna- and either change their behavior or invest in new assets in a
tional trends of consumers becoming increasingly aware of way that makes financial sense for them. The magnitude of
the incentive implied by the green tariff
is so high that it has often been profitable
for medium-voltage consumers to main-
table 1. Summary of Brazilian tariff structures
and time-of-use incentives. tain a generator on site to dispatch it dur-
ing the peak hours. The associated fixed
Typical per-kWh
Name of Tariff Nature of Tariff Ratio: Peak
costs of this investment can be fully cov-
Voltage Level Mode Tariff Mode Versus Off-Peak ered by the difference between the green
tariff and the fuel cost of operating the
Low-voltage Conventional “Flat” 1
generator during peak hours for its entire
“White” “Peaked” 2 useful life. The green tariff design brings
High-voltage “Blue” “Flat(ter)” 1.5 distortions that should be eliminated as
(medium-voltage) the country revisits its tariff structure
“Green” “Peaked” 6
framework. A silver lining is that tariff

28 IEEE power & energy magazine july/august 2023

distortions have created a culture that may facilitate the In addition to household income levels, areas also exist
dissemination of new distributed energy resources among in which the social environment is institutionally disorga-
these medium-voltage consumers in the context of the nized, and the state has difficulty providing public services
energy transition. Economics today usually favor diesel- and security. This anomie environment has particularly
fired generators, but battery storage systems have proved impacted Distcos’ energy theft levels, as shown in Figure 2,
competitive in some cases. that shows energy theft can vary from less than 5% to more
Finally, the most relevant case in which regulated consum- than 100% of low-voltage formal consumption, depending
ers have a choice are small-scale distributed generation (DG) on the region and concession.
arrangements. Regulation introduced in 2012 allows clients Electricity theft and income levels are relevant indicators of
to benefit from a net metering subsidy (paying the Distco a Brazilian socioeconomic complexity, which must be taken into
volumetric tariff only in proportion to their net consump- consideration when designing and evaluating new regulatory
tion) in case they have a DG installation in their own con- and market trends related to retail liberalization. In addition,
sumer unit, or if they adhere to a consortium of consumers the fact that concessions are very different from one another
who deploy these units elsewhere within the concession area
of its Distco. The market for DG in Brazil has been booming
since around 2016, when it started to become economically
Dissemination of Solar Power in Brazil
attractive for low-voltage consumers to purchase a small- 18

Installed Capacity (GW)

scale rooftop solar system rather than paying the distribution 15 Utility Scale
company tariff. Such installations have been more than dou- 12 Distributed Generation
bling each year since, as illustrated in Figure 1: distributed 9
solar capacity has surpassed utility-scale installations by
6
over 100%, reaching over 15,000 MW installed.
3
These initiatives highlight the variety of options the reg-
ulated Brazilian electricity consumers already have, given 0
2016 2017 2018 2019 2020 2021 2022
the limited amount of choice available to them, which are
made possible by consumers’ resourcefulness, but also by figure 1. Evolution of cumulative solar installed capacity
the economic incentives and distortions imposed by the in Brazil; 2022 data refer to installed capacity at the end
regulation. However, if the economic incentive is mis- of October
calculated, market imbalances
can emerge, a topic that will be
addressed next.
Energy Theft
Socioeconomic (% of Low-Voltage Energy Sales)
Complexity Is an Issue
Brazil has 54 major electricity Dist-
cos, comprising 88 million consum- CEA
ers, 530 TWh of total demand, and
3.8 million kilometers of distribu-
Amazonas Energia CELPA
tion network. As highlighted ear-
lier, Distcos operate as retailers for
around 65% of the Brazilian elec- CEAL
CERON
tricity market.
Distcos are very heterogenous,
especially in terms of market size,
population density, and socioeco-
0–8%
nomic conditions. Households with 8–24%
LIGHT; ENEL RJ
average income less than roughly 24–55%
US$120 per capita per month (half 55–127%
of the country’s minimum wage)
represent 27% of the country’s pop-
ulation on average, reaching 50%
in the poorest states. Low-income
households benefit from the “social
tariff” program, which lowers their figure 2. Concession areas of the most important Brazilian Distcos, highlighting
power bills by up to 60%. average energy theft levels.

july/august 2023 IEEE power & energy magazine 29

 The Distcos themselves are responsible for setting the demand for
the centralized auctions, but it is up to the government to determine
which types of contracts (and/or products) will be offered.

requires a more flexible regulatory framework to better accom- Even though new generation capacity based on free-
modate heterogeneities. market contracts has been an increasing presence in the
Brazilian market, for several decades the regulated market
Challenges to Full Retail Liberalization has been one of the major drivers of system expansion. The
This section addresses key financial “legacies” of the elec- Distcos themselves are responsible for setting the demand
tricity sector in Brazil that might make the transition toward for the centralized auctions, but it is up to the government to
a full retail liberalization more challenging. While the par- determine which types of contracts (and/or products) will be
ticulars of these so called legacies can differ from country to offered, what generation sources will be able to participate,
country, the resulting distortions can make it more challeng- and what the ceiling prices will be. Thus, the government has
ing to find a healthy balance in the retail market once full used these technology-specific auctions to procure the kind of
liberalization is introduced. new-generation supply that will bring desirable “attributes” to
benefit the system as a whole, even if costs of some auction-
Legacy Contracts and the Cost winning technologies are higher than others.
of Purchasing Reliability Therefore, whereas buyers of electricity in the free
Brazil has a legal obligation that all electricity consump- market will typically purchase electricity exclusively from
tion, whether in the free or in the regulated market, must the least-cost options available (typically solar and wind),
be backed by energy purchase contracts, and these contracts Distcos in the regulated market will often end up purchas-
must in turn be supported by physical energy generation ing a costlier mix of technologies because of the auction
facilities (measured by a firm energy certificate). Based on design. Because of this practice, the average cost of con-
this rule, the procurement of a new power generation project tracts in the regulated market (passed through to regulated
in Brazil is accomplished in two ways: 1) centrally, through consumers via electricity tariff) has been trending much
regulated auctions organized by the government, in which higher than contracts in the deregulated market, as illus-
Distcos purchase energy contracts to meet the growth of reg- trated in Figure 3.
ulated consumers’ consumption; and 2) in a decentralized In addition, to facilitate the process of obtaining financing
way, as the result of bilateral negotiations between sellers from financial institutions, the contracts offered for new sup-
and buyers on the free market. ply in regulated auctions have long duration (typically 15 to
30 years). Because these long-term
contracts are take-or-pay for the
generators (the Distco assumes
the consumption risk), Distcos
A Widening Gap Between Average Electricity Prices
are vulnerable to having excess
Cost of Long-Term Contracts (BRL/MWh)

250 contracts in their portfolio in case

of a mass migration of consum-
44% 33% 59%
200 44% ers to the free market. Regulated
54%
24% consumers will thus tend to be
30% saddled both with the higher costs
150
of energy purchases and the costs
of Distcos’s excess contracts.
100
This situation is a major flaw
in the market design that creates
50 a free-riding behavior for con-
Free Market Regulated Market
sumers that migrate to the free
0 market (if they are regulatorily
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
able to) or that adopt DG. It is
especially a moral and social
figure 3. Historical average electricity prices for contracts in Brazil’s free market concern as it disproportionally
and energy purchase costs in the regulated markets: 1 USD = ~5 BRL. burdens residential consumers

30 IEEE power & energy magazine july/august 2023

and small businesses that are more likely to remain in the country’s fund to recover costs associated with vari-
regulated market. More recently, last-resort contract auc- ous cross-subsidy programs. Another cost component
tions and capacity reserve auctions with costs borne by all relates to the Distcos’ “efficient” loss levels (technical
consumers were introduced as a step in the right direction to and nontechnical in nature).
start fixing this flaw, despite the still-standing legacy cost of In the case of DG, consumers only need to pay the Distco
reliability assigned only to the regulated market. in proportion to their net consumption (i.e., the difference
between energy imported from and exported to the grid),
Legacy Incentives and Tariff Distortions regardless of the hourly profile of these electricity flows. As
This section will introduce Brazilian legacy energy policy a consequence, they can effectively avoid paying any costs
mechanisms that effectively reduce certain consumer cate- that are charged on a R$/MWh basis by the Distco (which is
gories’ cost of electricity. This type of policy can be justified why the charges component for both low-voltage and high-
in certain cases: in Brazil, these subsidies have been respon- voltage consumers, in addition to the T&D costs for low-
sible for the dissemination of renewable sources (as incen- voltage consumers, are represented as a “high” subsidy in
tivized energy), DG, and also for mitigating social issues Table 2). Law No. 14300 from January 2022 brought changes
via social tariff programs. Nonetheless, concerns exist that to the net-metering mechanism aiming to reduce this tariff
regulatory decisions made under different conjunctures may distortion over time (in particular for the T&D components);
become misaligned with the current system reality. however, the phaseout of the incentive will be gradual over
Table 2 illustrates how specific business models can ben- the next 10 years, with existing projects retaining the current
efit from distortions and arbitrages in Brazil (each column of level of benefits until 2045. It is worth noting that, starting
the table represents a business model that will be described in 2023, this subsidy to adopters of DG will be incorporated
next). The table summarizes the net effect of complex tariff explicitly into the Energy Development Account (part of the
interactions that relate to the following tariff components charges component) as a cross-subsidy.
(paid to the Distco by both free and regulated consumers): In the case of the green tariff self-supply route, a por-
✔ The TUSD-D component represents the costs of re- tion of the T&D cost component is translated into a premium
munerating the transmission and distribution (T&D) (in R$/MWh) that is added to the cost of electricity at peak
networks in Brazil and will be referred to in this ar- hours. As discussed earlier, this premium tends to be so high
ticle simply as T&D costs. This component tends to that many adopters end up maintaining a diesel generator
be substantially greater among low-voltage consum- “behind the meter.” Furthermore, the premium is calculated
ers (around two times greater on average). In addition, by assuming a predefined capacity factor at peak hours. The
whereas low-voltage consumers always pay for these net effect is that, by operating such a generator, consumers
costs on a per volume basis ($/MWh), high-voltage end up not paying for a portion of the associated costs of
consumers will tend to pay for most of these costs on the transmission and distribution network (though this is a
a basis of peak demand ($/kW/month). medium-low subsidy proportionally).
✔ The TUSD-E component is referred to as a charges The incentivized energy subsidy is a legacy incentive to
component that includes various types of cost compo- renewable generators established 25 years ago in the form of
nent that are typically charged on a per volume basis a 50% discount in the T&D tariff component of both the sell-
($/MWh) and that also tends to be higher for low-volt- ers and the buyers of electricity from incentivized sources.
age consumers. A major contributor to this compo- When the law was originally enacted, the economic viability
nent is the Energy Development Account, which is the of these sources was profoundly different from today, and

table 2. Examples of tariff arbitrages and distortions in Brazil.

Regulated Market Free Market

Expected Proportional Distributed “Green” Tariff Outside-the-Fence

Tariff Reduction Generation Self-Supply Incentivized Energy Self-Production
Low Transmission and distribution High N/A Medium high* None*
voltage costs (TUSD-D)
Charges (TUSD-E) High N/A None* Medium high*

High Transmission and distribution None Medium low Medium None

voltage costs (TUSD-D)
Charges (TUSD-E) High None None High

*Currently inaccessible (until retail liberalization reaching low-voltage consumers).

july/august 2023 IEEE power & energy magazine 31

 the free market (eligible for this tariff discount) was con- concerning when considering that, even in the context of
strained to a much smaller pool of consumers. Consumers a full market liberalization, most likely it will be smaller-
connected to the low-voltage grid are not only much more and lower-income low-voltage consumers that can be
numerous, but they also have much higher T&D tariff com- expected to have the greatest level of difficulty in mak-
ponents in absolute terms. As a consequence, as the free ing this migration, requiring them to absorb much of the
market expands, this subsidy could grow significantly, with resulting price shock.
its costs incorporated into the charges tariff component. Figure 4 illustrates how key subsidy components have
Another opportunity that consumers can take advantage of been growing over the past few years. The increase in the
to avoid certain electricity sector charges is the so-called self- DG component results from the exponential growth of DG,
production arrangement. In Brazil, it suffices for a consumer to whereas the incentivized energy component is largely asso-
be the shareholder of power plants that do not need to be located ciated with the migration of consumers to the free market.
on the consumption site to be exempted from a significant por- With further retail liberalization, room exists for the incen-
tion of the charges component (including cross-subsidies relat- tivized energy subsidy to grow even more. The biggest issue
ing to the costs of the incentivized energy and, starting in 2023, here is not necessarily with the existence of these subsidies,
of the DG program). More recently, a special juridical structure but with facilitating access to existing arrangements to
has allowed consumers to profit from this benefit even without broader groups of consumers with higher tariff components,
a capital commitment on the generation plant. without concern for the effect on consumers that remain in
the regulated market.
Consequences and Concerns of Existing
Cross-Subsidies Despite Challenges, the March to Retail
Concerns with the potential cost imbalances of the sub- Liberalization Moves on
sidies described earlier have been raised. They create The abovementioned distortions show a potential risk of
regulatory risk-free arbitrages, backed by the coexistence mass migrations to the free market or DG in a disorganized
of different incentives perceived by consumers that may way due to risk-free regulatory or tariff arbitrages. This sit-
stimulate migration to the free market for reasons other uation has resulted in a consensus in the country that it is
than simply the market price and better services by the important to organize and move forward with an organized
supplier. Perhaps most importantly, increasing rates of market liberalization. The issues that will need to be solved
adoption tend to create a positive feedback loop, in which to enable a sustainable process are profound, with no clear-
a larger number of adopters to the free market leaves a cut solution in sight. Despite this difficult context, Brazil has
smaller number of consumers to pay for the costs left been able to accumulate several successes and steps in the
behind, which in turn increases tariffs and incentivizes right direction that are worth highlighting.
further migration. These feedback loops are especially
Robust Regulatory Agency and
Institutions Matter
Components of Brazilian Electricity Sector Subsidies Perhaps one of the most important assets, when dealing with a
28 situation in which agents have competing interests and do not
wish to part with legacy benefits they are (arguably) entitled to,
26
10% is to have a robust mechanism of governance and trustworthy
Total Subsidy (Billion BRL)

24 +146% p.a. institutions to lead communications and discussions with society.

22 The current Brazilian regulatory framework originates
20 27% from the 1988 Brazilian Federal Constitution, which high-
+17% p.a.
lights that public services are a responsibility of the state
18
but can be granted to private companies, opening the way to
16 privatizations in the 1990s. The Brazilian electricity regula-
+11% p.a. 13%
14 tory authority ANEEL was created in this context in 1996,
12 –1% p.a.
as a technically, administratively, and financially autono-
51%
10
mous institution.
2019 2022 Even though, sporadically, there have been initiatives in
Distributed Generation Renewable Sources
Congress to challenge some of ANEEL’s decisions, in more
Social Tariff Other Subsidies than 25 years of the Brazilian Power Sector Regulatory
Framework, the net effect has been a strong regulatory gover-
figure 4. Comparison of total subsidies in the Brazilian nance driven by technical priorities rather than political ones.
electricity sector in 2019 and 2022, highlighting key relevant ANEEL is a regulatory agency that has gone through many
components; 1 USD = ~5 BRL. p.a.: per annum, average cycles of (different) federal governments, maintaining its core
year-on-year increase during the period. characteristics, its respect for the sanctity of contracts, and has

32 IEEE power & energy magazine july/august 2023

 Despite these limitations, a free market that plays a more active role
and that is comfortable with financing new capacity is an important
step for further improvements in the market design.

contributed over the years to the security, robustness, and trust- Another example refers to surcosts associated with legacy
worthiness of the sector. While the Ministry tends to be more contracts in the Distcos’ portfolio, an effort to avoid bur-
politically minded and more subject to transient energy poli- dening only regulated consumers, as market liberalization
cies, having a more technically minded regulator strengthens expands. Bill 414/2021, currently under discussion in the Bra-
the institutional framework. Brazil also has other autonomous zilian parliament, explicitly indicates that part of the excess
institutions that may be involved in the matter of the evolv- contracting costs in Distcos’ portfolios ought to be shared
ing electricity market framework, such as the National Elec- among all consumers (free and regulated), accounting for
tric System Operator (ONS), the market operator Chamber of the fact that a large portion of this cost is due to consumers
Electric Energy Commercialization (CCEE), and a planning migrating to the free market. This same bill also establishes
company Energy Research Office (EPE). In addition, there is a that migrating consumers will have to bear the level of sec-
culture across Brazilian institutions of running public hearings tor charges in the regulated market at the time of migration.
with ample participation from interested parties and of shar- Thus, the concept of a regulatory backpack is effectively
ing technical documents with analyses of potential impacts introduced and reflected in Brazilian system charges.
of various policy decisions. These efforts have contributed to With regards to sharing system reliability costs among
ensuring that, most of the time, electricity market agents are all consumers, it is worth mentioning the country’s reserve
well-informed and that their concerns are heard. auctions for procuring peak capacity, with associated costs
Despite the complexity of the matter of retail liberaliza- to be shared among all consumers (except self-producers)
tion, a robust institutional framework like this one is virtu- through a specific sector charge. Brazil’s first auction with
ally necessary to reach consensus or to make decisions on this purpose took place in 2021. Similarly, the country’s
controversial topics, with the regulator playing the role of an third nuclear power plant, considered a strategic project, if
independent arbiter when needed. constructed, will have its costs also borne by free and regu-
lated consumers, contrary to previous nuclear power plants
Regulatory “Backpacks” to Maintain a Balanced that had been assigned to the regulated market exclusively.
Cost Allocation to Final Consumers Finally, it is worth mentioning that Bill 414 has provi-
The need for a retail liberalization that does not cause tariff sions to reduce the risk that new and significant costs related
increases for consumers who remain in the regulated market to incentivized sources are transferred to regulated consum-
is a concept explicitly provided for by Brazilian law. This ers. Indeed, the only hope of finding a healthy equilibrium
concept constitutes an important framework for the regula- between the free and regulated markets will be if costs are
tory design, although it has not always been observed, as split fairly, especially in the case of projects that benefit the
shown in some of the examples mentioned previously. system as a whole.
In this sense, the notion of a regulatory backpack in the
context of the electricity sector relates to a consumer, when Long-Term Power Purchase Agreements:
migrating to the free market, taking with them a portion of Not Only for the Regulated Market
the “surcosts” incurred by the Distco “on behalf of” this Another success of the Brazilian market model has been the
consumer, when it was part of the regulated market. The idea emergence of more robust financial instruments and the con-
is that, even if the consumer is allowed to migrate, it must solidation of free-market consumers and retailers as reliable
migrate taking its backpack with them. There are examples and creditworthy off-takers. Even though this might seem like
in which this core concept is applied in Brazil. an obvious development, given that the free market currently
Brazil organized in 2020 a loan to cover Distcos’ extraor- represents almost 35% of the country’s consumption, it is
dinary expenses during the Covid-19 pandemic, to be repaid important to remember that, when the Brazilian energy
over the following years (the “Covid account”). Contrary contract auctions model was originally conceptualized,
to similar financial operations that had been carried out in it was generally agreed upon that no new generation capac-
2014–2015, the Covid account mechanism anticipated that ity would be built unless they could rely on long-term con-
the costs of the loan would be paid by the regulated con- tracts financially backed by a Distco. For several years, this
sumers plus any free consumers that ended up migrating indeed seemed to be the case, which is why most of the
after the loan was taken (ensuring they would still pay their system expansion in the 2000s and 2010s was from projects
fair share). that were committed in the energy auctions, and why the

july/august 2023 IEEE power & energy magazine 33

 Distcos were saddled with a costly contract portfolio. Project Modernization of the Distribution Business
developers were used to having access to these very long- Perhaps one of the most glaring deficiencies of the Brazilian
term contracts with reliable off-takers and generous terms market framework in its path toward retail liberalization is
tailored to each technology. how the Distcos are structured, as a combination of distribu-
Over time, however, free consumers started to show an tion network owner and operator and a monopolist retailer
increasing appetite for procuring mid- to long-term con- for the regulated market. The most important recommenda-
tracts, and project developers have similarly shown a greater tions raised in this context that directly affect the Distcos’
willingness to make investments in new capacity backed by business model and that could play a role in enabling market
free-market contracts. Even financiers have joined in these liberalization are as follows:
innovations, accepting generators’ demonstrations that, ✔ improve Distcos’ tools (and incentives) to manage
even if they do not have long-term contracts covering their their contract portfolios, including facilitating the ex-
entire operational period, they can follow a predictable con- change of contracts among utilities and sales in the
tracting strategy that greatly reduces the volatility of their free market
expected revenues (which, in turn, increases the maximum ✔ avoid new expensive and long-term contracts in the
amount of financing they can procure). The success of these regulated market, focusing on more technology-neu-
long-term contracting strategies is illustrated in Figure 5: tral auctions, with shorter contracts offered to suppli-
approximately 40% of contracts have a duration of four ers, and with the costs of valuable attributes shared be-
years or more. tween all consumers to avoid free-riding on reliability
Current practices in the free market are not perfect, of ✔ unbundling retail and grid activities of Distcos, with
course; after all, these long-term contracts are at least in part specific regulatory frameworks for each, including
made viable by the legacy subsidies and regulatory arbitrages guidelines for “supplier of last resort” services.
described earlier in this article. Furthermore, the expansion Grid digitalization is also under discussion, as in Brazil it
that is financed by the free market is almost fully based on the is still incipient compared to the country’s potential. Smart
cheapest generation sources available, which have been wind meters, for example, are available to roughly 1 million con-
and solar. This situation often launches a debate regarding sumers, a tiny fraction of Brazil’s almost 90 million. Many
to what extent these technologies—and hence free consum- regulatory factors that explain this timid rollout are known
ers—can contribute with necessary system services (such as and being addressed, such as reviewing Distcos’ revenue
flexibility and resilience) valued by the system operator and structure and reducing under-remuneration risks for grid
planner. Despite these limitations, a free market that plays a services. A clear unbundling of the grid and retail businesses
more active role and that is comfortable with financing new allows an identification of the risks these businesses are sub-
capacity is an important step for further improvements in the ject to and an indication of which “other services” could be
market design. provided by each of these two businesses. Altogether, they

Total Volume (in Avg MW) of PPAs Held by Liberalized Consumers in December 2021

Over 12 Years 1,925

10 to 12 Years 450

8 to 10 Years 563

6 to 8 Years 843

4 to 6 Years 4,466

2 to 4 Years 5,831

1 to 2 Years 2,376

6 Months to 1 Year 2,530

2 to 5 Months 456

1 Month 906
0 1,000 2,000 3,000 4,000 5,000 6,000

figure 5. Total volume (in average megawatts) of contracts held by consumers in the free market in December 2021,
classified according to the contract term.

34 IEEE power & energy magazine july/august 2023

could not only enable a more-efficient market design but also ✔ equitable contracting practices between the free and
a stronger diffusion of new technologies and innovative ser- regulated markets, with any extra costs deemed nec-
vices, with ample synergies among these efforts. essary (such as “reliability-driven” contracting) made
transparent and split by both groups—one aspect in
In Summary which Brazil best serves as a cautionary tale to the
In a context of increasing decarbonization, digitalization, potentially dire consequences of allowing imbalances
and decentralization (with dissemination of distributed and distortions between the free and regulated markets
energy resources), there has been increasing pressure for to persist (and the difficulty of handling legacy costs)
retail liberalization across the world. Looking into how mid- ✔ a robust regulatory framework for Distcos, including,
dle-income countries such as Brazil have been facing these but not limited to, unbundling their retail and grid
challenges can be relevant for other countries with similar activities, with better designed incentive-based regu-
pressures. In addition to empowering consumers on their lated contracts and tariff structures: Brazil has only
energy management, retail liberalization in Brazil gained taken its first steps on this front, although the need for
momentum in the face of the growth of DG, which “liberal- a more modern framework for the distribution busi-
izes” the market to consumers that are still regulated. Hence, ness model has been proving increasingly crucial.
the authors perceive retail liberalization as a one-way road.
Without arguing the benefits of retail liberalization, to For Further Reading
discuss it after almost 25 years of liberalization at the whole- L. A. Barroso, F. D. Munoz, B. Bezerra, H. Rudnick, and
sale level is not an easy task anywhere. Contractual and reg- G. Cunha, “Zero-marginal-cost electricity market designs:
ulatory legacies might compromise the overall efficiency of Lessons learned from hydro systems in Latin America might
the liberalization process, as distorting price signals might be applicable for decarbonization,” IEEE Power Energy
overburden certain consumers and create self-reinforcing Mag., vol. 19, no. 1, pp. 64–73, Jan./Feb. 2021, doi: 10.1109/
feedback loops without a well-conceptualized retail lib- MPE.2020.3033398.
eralization plan. This type of negative influence has been R. de Sa Ferreira, P. H. Corredor, H. Rudnick, X. Sala-
exemplified with the situation in Brazil, but it is a common zar, and L. A. N. Barroso, “Electrical expansion in South
consequence of legacy cross-subsidies in markets with par- America: Centralized or distributed generation for Brazil
tial retail liberalization. and Colombia,” IEEE Power Energy Mag., vol. 17, no. 2,
The creation of free-riding opportunities for migration pp. 50–60, Mar./Apr. 2019, doi: 10.1109/MPE.2018.2884113.
due to factors other than competition itself is also a risk, as F. Amorim, J. Vasconcelos, I. Abreu, P. Silva, and V.
costs not paid by one class of consumers must be paid by oth- Martins, “Assessment of legacy generation contracts’ costs
ers. Lower-income classes might not be attractive to retail- in the future Portuguese electricity system,” in Proc. 9th
ers, effectively remaining in the regulated market, which Int. Conf. Eur. Energy Market, 2012, pp. 1–4, doi: 10.1109/
may deepen social divisions and create further concerns. In EEM.2012.6254647.
Brazil and elsewhere, it is not always feasible for the Trea- Brazil Full Retail Liberalization, “Cálculos relativos aos
sury to simply absorb the cost of cross-subsidies, requiring a efeitos econômicos e financeiros advindos do processo de
more complex solution. modernização do Setor Elétrico Brasileiro,” (in Portuguese),
In-depth knowledge of individual country contexts is Ministry of Economy of Brazil, 2022. [Online]. Available:
important in order to find specific solutions for the conun- https://www.gov.br/economia/pt-br
drums involved in promoting full retail liberalization,
which is why the Brazilian context was used to illustrate the Biographies
broader issue. For Brazil and other countries facing a simi- Gabriel Cunha is with PSR Energy Consulting & Analytics,
lar context, however, strategies tend to be based on similar 22250-040 Rio de Janeiro, Brazil.
core fundamentals: Paula Valenzuela is with PSR Energy Consulting & An-
✔ discussions with market agents, political actors, and alytics, 22250-040 Rio de Janeiro, Brazil.
society at large, hopefully backed by strong techni- Gisella Siciliano is with PSR Energy Consulting & Ana-
cally oriented institutions, as illustrated by the best lytics, 22250-040 Rio de Janeiro, Brazil.
practices that have been part of Brazilian institutions’ Angela Magalhães Gomes is with PSR Energy Consult-
core procedures from the beginning ing & Analytics, 22250-040 Rio de Janeiro, Brazil.
✔ an element of regulatory backpack charges for fairly Mateus Cavaliere is with PSR Energy Consulting &
splitting costs between the free and regulated markets— Analytics, 22250-040 Rio de Janeiro, Brazil.
while these have not been systematically applied in Luiz Barroso is with PSR Energy Consulting & Analytics,
Brazil, there is increasing awareness to their impor- 22250-040 Rio de Janeiro, Brazil and Instituto de Investigación
tance, and explicit implementation on a case-by-case Tecnológica, Escuela Técnica Superior de Ingeniería, Univer-
basis (e.g., Brazil’s Covid-related program for electric- sidad Pontificia Comillas, 28015 Madrid, Spain.
p&e
ity consumers)

july/august 2023 IEEE power & energy magazine 35

 Beyond
Individual Active
Customers
By Nicolò Rossetto

T
THE ENGAGEMENT OF ENERGY CUSTOMERS HAS
been considered an important pillar of the European Union
(EU) strategy to reach net-zero greenhouse gas emis-
sions by 2050, while preserving a competitive and
secure energy system. The legislative pack-
age Clean Energy for all Europeans (CEP),
adopted by the EU in 2019, confirms the
relevance of removing the existing bar-
riers for end users not only to choose
their energy supplier but also to invest
in distributed generation and storage
and participate in all energy mar-
kets. Interestingly, the new European
legal framework goes beyond the
recognition of the rights and duties
of individual active customers, the
so-called prosumers, and introduces
for the first time an explicit reference
to energy communities, which take
two specific definitions: citizen energy
communities (CECs) and renewable
energy communities (RECs).
This article provides the reader with
an introduction to the concept of energy
community and the reasons why European
policymakers decided to foster the emergence of
this type of actor in the energy system (the section
“Collective Actors to Support the Energy Transition”). It
then presents the main elements of the new European legal

Digital Object Identifier 10.1109/MPE.2023.3269541 IMAGE LICENSED BY INGRAM PUBLISHING

Date of current version: 21 June 2023

36 IEEE power & energy magazine 1540-7977/23©2023IEEE july/august 2023

 framework, highlighting both the similarities and the differences that exist between CECs and
RECs (the section “The European Legal Framework”). After that, the article illustrates some of
the critical issues that have emerged and the opportunity that the current energy crisis in Europe
may represent (the section “Critical Issues and Future Opportunities”). Finally, a summary of
the article is provided (the “Conclusions” section).

Collective Actors to Support the Energy Transition

A Change of Paradigm
The European energy and climate targets imply that renewable and other low-carbon energy
sources will have to replace fossil fuels in the next three decades. This transformation means
not only huge investments in the capital stock but also a new organization of the energy sys-
tem, capable of efficiently integrating energy sources
that are characterized by a more dispersed geographical
distribution and intermittency. The transformation also
Citizen and Renewable means the emergence of new business models able to
recover those upfront investments and satisfy the needs
Energy Communities in and preferences of an increasingly differentiated cus-
tomer base. Eventually, the transformation means the
the European Union shift to a more decentralized paradigm in energy, where
local solutions are trialed and adopted in response to
specific conditions and where the active involvement of
consumers is an essential factor.
Consumers, be they households, businesses, public
bodies, or other organizations, must engage in the transformation of the energy system and
support it. After all, climate neutrality will not be achieved in an efficient and effective man-
ner by simply changing the supply of energy: the way that energy is consumed will have to
adjust as well. Consumer engagement in energy can obviously take the form of individual
actions—you may think of an industrial firm that produces the heat and electricity it
needs on site via a gas turbine or a household that covers its rooftop with solar panels.
However, consumer engagement can also take the form of collective action, where a
plurality of consumers chooses to act together. This is the concept of energy com-
munity to which we now turn.

A Heterogeneous Phenomenon
Energy communities represent a heterogeneous sociotechnical phenomenon,
for which it is difficult to provide a precise definition. Broadly speaking,
the expression “energy community” refers to energy-related initiatives led
by a group of households, businesses (typically small and medium-sized),
public authorities, and nongovernmental organizations. These initiatives
are often, but not necessarily, local and typically focus on the distribution
and supply of energy or on joint investment in energy production, frequently
based on renewables. Energy communities may also target energy efficiency
and, more rarely, the provision of other services, such as the recharging of
electric vehicles or the management of distributed energy resources, including
those on the demand side. Participation in an energy community is usually open
and voluntary, while decision-making is based on democratic principles (e.g., one
member, one vote).
Energy communities typically do not have a commercial nature, namely, they do not
pursue primarily financial profits for their members. On the contrary, mutualistic purposes
and/or social and environmental motivations play a key role. In the first case, energy com-
munities aim to provide an economic service to their members, such as electricity supply,
while in the second, they aim, for instance, at fostering local development, fighting energy
poverty, or accelerating the decarbonization of the energy system. Although generalization
is difficult, it is quite safe to say that most of the community-based initiatives try to combine

july/august 2023 IEEE power & energy magazine 37

 both the mutualistic and the socioenvironmental goals as people and small businesses take the lead in the field of
the majority of consumers are not ready to bear a significant energy, sometimes with the support of local public authori-
extra cost for participation. On the contrary, the possibility ties. Their focus is different, though. Rather than looking
to achieve some economic savings is an important driver to after access to modern energy, an issue solved basically
expand membership beyond relatively few environmental or everywhere in Europe, they mostly aim at the creation of
social activists. a more sustainable energy system and a decreased reliance
Energy communities are not an entirely new phenomenon on the traditional, profit-driven, players of the sector. The
in Europe. Between the end of the 19th century and the first use of energy as an opportunity for social innovation and
half of the 20th century, several cooperatives were established local development is an important motivation behind some
in the Alps and elsewhere to ensure the production and dis- of these initiatives too.
tribution of electricity to their members. At that time, access The factors supporting this second wave of communities
to modern energy was often a challenge, and neither private are multiple. Some of them are technological, such as the
nor publicly owned enterprises were much interested or able development of the technologies for distributed generation
to address it in remote and sparsely populated areas. There- and storage or for the monitoring and control of loads. Others
fore, in some cases, such as, for instance, in different loca- relate to the policy and regulatory framework, such as the lib-
tions in the Alps, local communities decided to take the lead eralization of the energy sector and the promotion of renew-
and benefit from the availability of abundant local resources, ables. Social factors are at play as well, such as the increasing
such as hydropower. In Europe, this first wave of energy com- environmental awareness of citizens and the appeal of the
munities, mostly focused on electrification, lost momentum sharing economy principles.
after the Second World War, when the creation of large public
enterprises in charge of the electricity service at the regional Strengths and Weaknesses
or national level confined energy communities to small niches. Energy communities are today a minor actor in the Euro-
A second wave of energy communities started in the final pean energy system, but the statistics that we have avail-
years of the 20th century, especially in countries such as able, although limited and often hard to compare, confirm
Denmark and Germany, and is in full swing today. Again, their role is growing (see Table 1). This situation reflects

table 1. Quantification of energy communities in a sample of European countries.

Country or Number of Energy Number of
Region Year Communities Individuals Involved Source
Europe 2022 1,900 energy 1.25 million citizens REScoop (https://www.rescoop.eu/about-us)
cooperatives who are
members of REScoop
France 2021 41 collective self- 607 participants Enedis (https://flux50.com/media/5757/05%20
consumption projects Enedis.pdf)
Germany 2021 847 energy 220,000 members DGRV (https://www.dgrv.de/wp-content/
cooperatives uploads/2020/07/20200708_State-of-the
-sector-2020.pdf)
Great Britain 2021 495 community energy 58,000 members Community Energy England (https://www.
organizations communityenergyengland.org/pages/state-of
-the-sector)
Greece 2021 1,036 energy Not available The Green Tank (https://thegreentank.gr/
communities en/2021/11/22/brief-encom-en/)
Ireland 2022 677 sustainable energy Not available Sustainable Energy Authority of Ireland (https://
communities www.seai.ie/community-energy/sustainable
-energy-communities/)
Italy 2021 Three RECs and 73 18 final customers GSE https://www.gse.it/documenti_site/
historical energy who are members Documenti%20GSE/Rapporti%20
cooperatives of RECs and 80,000 delle%20attivit%C3%A0/GSE_Rapporto_
clients of historical Attivit%C3%A0_2021.pdf and Confcooperative
cooperatives (https://www.consumo.confcooperative.it
/I-SETTORI/Elettrico)
The Netherlands 2021 676 energy 112,000 members HIER opgewekt (https://www.hieropgewekt.nl/
cooperatives local-energy-monitor-2021)
(Source: author’s compilation of various sources.)

38 IEEE power & energy magazine july/august 2023

the strengths and weaknesses that characterize collective ambitious initiatives. The same democratic and participa-
action in the energy sector. In terms of strengths, energy tory governance that can promote members’ engagement
communities can take advantage of the larger scale at which and the identification of consensus solutions may turn
they operate vis-à-vis individual consumers. While a single into a drawback when it slows down the decision-making
family or a small business can invest in a photovoltaic unit process and the subsequent implementation phase. In this
of a few (tens of) kW, a group of families or small busi- context, the presence of members or promoting actors
nesses may easily install a plant of some hundred kW or endowed with specific competencies and a sense of initia-
more. Energy communities can also benefit from the pos- tive and leadership represents a fundamental ingredient of
sibility of investing in more than one project or combining a successful energy community.
multiple activities, such as generation and supply. They can From this brief overview, it is apparent that energy com-
also profit from the complementary needs of different mem- munities have the potential to play an important role in facil-
bers, thereby improving the capacity factor of their assets. itating the energy transition and making it more sustainable,
In all these cases, average costs tend to diminish, increasing also from a social point of view. However, there is no cer-
the competitiveness of collective action compared with the tainty that such potential will materialize, especially at the
individual one. scale required for the EU to reach net-zero greenhouse gas
However, the search for mere economic efficiency is not emissions by 2050. To make that happen, it is necessary that
the only strong point of energy communities. Community- the policy and regulatory framework properly considers the
based initiatives can also deal better with the lack of social specific characteristics of energy communities, such as the
acceptability of new infrastructures. Today this issue rep- intermediate working scale and the noncommercial nature.
resents a major obstacle to the construction of new power It is equally necessary that public authorities, in particular
plants, including those running on renewables, and elec- those responsible at the local level, put in place concrete sup-
tricity grids. People located around a wind or a biomass port measures that address the most important weaknesses,
project developed by some firm external to the local com- such as insufficient funding and the limited ability to deal
munity are likely to oppose it, contributing to the lengthy with complex procedures.
permitting and authorization processes, which are cur-
rently important reasons for the slow uptake of renewables The European Legal Framework
and the cost escalation of some projects. By building on the
trust that exists among community members, by involving A New Deal for Consumers
all the stakeholders in the decision-making process, and Until 2018, there was no specific reference to the concept
by actively pursuing a positive return for the local econ- of energy community in the European legal framework.
omy and society, an energy community may defeat the The numerous directives and regulations issued since
resistance to the construction of new infrastructures and the 1990s were aimed at the liberalization, integration,
reduce substantially the time required to obtain permits and decarbonization of the energy sector within the EU.
and authorizations. They mentioned energy undertakings, national regulatory
Despite the advantages just mentioned, energy commu- authorities, and final customers but did not foresee a par-
nities may still suffer from an enduring cost gap with the ticular role for collective actions put in place by end users.
traditional actors of the sector. This gap can be the result Community-driven initiatives that were already develop-
of the intermediate scale at which communities operate. ing, especially in the northern part of the continent, could
While a community can invest in larger assets than individu- then not benefit, at least at the European level, from dedi-
als, those assets are usually smaller than those operated by cated norms that recognized their intrinsic difference
classical energy firms. In the cases of technologies that from the traditional, profit-driven actors and their poten-
exhibit important economies of scale, such as offshore wind, tially positive impact on consumers, the environment, and
community-driven initiatives will face a disadvantage and be society at large.
less attractive for those consumers that attribute an important However, in 2015, the European Commission (EC)
role to the economic benefits of participation. The expansion acknowledged the size of the challenges posed by the energy
of existing energy communities and the establishment of new transition and the increase in energy costs borne by Euro-
ones are likely to be affected. pean citizens and firms. The EC then decided to offer a
The lack of specific skills and the technical expertise new deal for consumers. The deal, included in the broader
necessary to develop and manage complex projects or political initiative on the Energy Union, committed the EU
interact with the rest of the energy system and the vari- to reform its energy markets and policies on the promotion
ous energy markets can equally hinder the development of renewable energy sources, while putting consumers at
of energy communities and call for the support of profes- the center. According to this new deal, consumers, either
sional partners. Similarly, limits in the financial resources individual or collective, had to have the necessary tools
that can be mobilized may imply a slower implementa- and rights to play an active role in energy and directly ben-
tion of community projects or even the surrender of more efit from competition in energy markets and renewables’

july/august 2023 IEEE power & energy magazine 39

 development. By means of such consumer empowerment, energy efficiency schemes; 3) the right to delegate to a third
the EC sought to achieve three goals: 1) promoting a better party the management of the installations required for their
use of energy resources, in particular those at the distribu- activities, including installation, operation, data handling,
tion level; 2) mobilizing private capital for investment in the and maintenance; 4) the right to share, within a group of
long-lived physical assets required by the energy transition; renewables self-consumers located in the same building or
and 3) addressing the growing problem of local opposition to multiapartment block, the energy produced from renew-
the construction of new plants, in particular those based on able sources on their site or sites, without prejudice to the
renewable energy sources. network charges and the other relevant charges and levies
Building on the pledges contained in the new deal, applicable to each renewables self-consumer; and 5) the
the EC proposed a comprehensive legislative package in right to become a member, under certain conditions, of a
November 2016, the already-mentioned CEP. After a long CEC or an REC.
and hard-fought legislative process, the CEP was eventually CECs and RECs are new collective actors of the
adopted between 2018 and early 2019. Among the several energy sector that enjoy a set of rights and must satisfy
pieces of new legislation, two are particularly relevant in specific requisites. These requisites, which overlap each
this context: Directive (EU) 2018/2001 on the promotion other to a significant extent, relate to 1) the type of sub-
of the use of energy from renewable sources, also known jects that can become members of the community (see
as the renewable energy directive II (RED II), and Direc- Figure 2); 2) the participation and governance models
tive (EU) 2019/944 on common rules for the internal market that can be adopted; and 3) the nature of the communi-
for electricity, also known as the internal electricity market ty’s primary purpose, which cannot be the production of
directive (IEMD). These two directives represent together a financial profits but rather must be the provision of eco-
watershed in European energy policy as they formally rec- nomic, environmental, and social benefits for the mem-
ognize for the first time the right for consumers to play an bers and stakeholders or the areas where the community
active role in the electricity markets and the transition to a operates. Consistent with the different goals of the two
decarbonized energy system. Four new legal concepts are directives that introduce them, CECs and RECs present
introduced: active customers, (jointly acting) renewables some differences, though. These differences are the topic
self-consumers, CECs, and RECs. For each of them, a set of we now consider in more detail.
rights and duties is specified (see Figure 1).
Without any intention to be comprehensive, it is sufficient CECs
to say that based on the new provisions, final customers have A CEC is a legal entity introduced by the IEMD with the
1) the right to access all energy markets without being dis- purpose of enabling individuals; local authorities, such as
criminated and subject to disproportionate treatment or to municipalities; and (small) firms to take the initiative in the
network charges that are not cost-reflective and transparent; electricity sector and directly benefit from it. Such initia-
2) the right to consume, store, and sell the energy produced tive can be very broad as the directive states that CECs may
within their premises or within other premises and to par- engage with electricity generation, supply, storage, distribu-
ticipate, either individually or collectively, in flexibility or tion, and consumption. They can share the energy they

CEP Concept Characteristics

Limited in Eligibility; Must be a Legal Entity

RECs With Specific Ownership Governance
Requirements, and Based on a
Non-Commercial Business Model
CECs

Open to Any Consumer on a Collective Basis;

Jointly-Acting Can be Facilitated by any Business Model

Renewables Self-Consumers
Open to Any Consumer on an Individual Basis;
Can be Facilitated by any Business Model
Active Customers

figure 1. Different levels of citizen and consumer empowerment in the CEP. (Source: REScoop and ClientEarth, 2020;
used with permission.)

40 IEEE power & energy magazine july/august 2023

produce over the public network and be involved in aggrega- On the other hand, the directive sets a series of requi-
tion or the supply of other services, such as energy efficiency sites for RECs that are somehow stricter than those that
and the recharging of electric vehicles, to their members apply to CECs (see Figures 1 and 2). Large enterprises and
and stakeholders. those that operate in the energy sector cannot be members
CECs are not limited to a specific geographical area or of an REC, while effective control must be exercised by
to a specific type of energy source: they can indifferently members that are located in the proximity of the renew-
use fossil fuels and renewables. However, participation must able projects that belong to or are developed by the com-
be open and voluntary, while control can be exerted only munity. Additionally, an REC must be autonomous of its
by individuals, local authorities, and small enterprises. Any individual members. The satisfaction of these requirements
large enterprise, including those involved in the energy busi- is perceived as necessary to preserve the spontaneous and
ness, that is part of a CEC cannot exercise such control. democratic nature of the community and its ability to fulfil
Members of a CEC preserve their rights as final customers the public goal assigned to it, which, as it was said earlier,
(e.g., they retain the possibility to choose their own electric- is to accelerate the development of renewables by imple-
ity supplier) and can leave the community if they wish. menting distributed solutions, mobilizing private capital,
The directive states that EU member states must adopt and addressing social resistance to new infrastructures at
an enabling regulatory framework that ensures a level play- the local level.
ing field for CECs in existing and new electricity markets. However, these eligibility criteria are matched by a series
The cooperation by distribution system operators must be of rights. First, RECs have the possibility to produce, con-
equally guaranteed. At the same time, however, CECs are sume, store, and sell the renewable energy they produce,
responsible for their imbalances and must contribute their including through power purchase agreements. They can
fair share of the electricity system costs. also share, within the community, the energy produced
from plants owned by the community and access all suitable
RECs energy markets, both directly and through aggregation, in a
An REC is a legal entity introduced by the RED II with the nondiscriminatory manner. In addition to these rights, which
purpose of enabling individuals, small and medium-sized are similar to those of CECs, RECs are entitled to an enabling
enterprises, and local authorities to directly participate in framework that promotes and facilitates their development.
the development of renewable energy sources and benefit This framework, among other things, has to ensure 1) the
from it. No explicit list of admissible activities is provided in removal of all unjustified regulatory and administrative bar-
the directive, and no exclusive reference to electricity applies riers; 2) the cooperation of distribution system operators to
(i.e., an REC can deal with heat or transport fuels as well). facilitate energy transfers within the communities; 3) the

Renewable Energy Community Citizen Energy Community

Local Authority
Household Local Authority Household

Energy
Community’s
Micro and Project Medium Micro and
Small Enterprises Medium Enterprise
Small Enterprises Enterprise
Controlling Members
Controlling Members (in Proximity of
Community’s Project)

Energy Sector
Household Micro and Large Enterprise Enterprise
Small Enterprises Medium Enterprise
Energy Community Members and Shareholders Energy Community Members and Shareholders

figure 2. Membership and effective control criteria of RECs and CECs. (Source: adapted from Alaton and Tounquet; used
with permission.)

july/august 2023 IEEE power & energy magazine 41

 possibility for all consumers, including those in low-income In the transposition process, member states benefit from a
and vulnerable households, to participate; 4) the availability significant degree of freedom. First, they have the right (but
of tools that facilitate access to finance and information; and also the duty) to specify the numerous elements of the two
5) the provision of regulatory and capacity-building support directives that were voluntarily left general or even vague.
to public authorities that want to participate in an REC or For instance, member states are called to clarify what legal
facilitate its establishment. Beyond this enabling frame- forms a CEC and an REC can assume and what proximity
work, EU member states must consider the specificities of to a renewable project means. Second, member states must
RECs when designing renewable support schemes to allow concretely set charges and procedures that are transparent,
them to compete for support on an equal footing with other nondiscriminatory, and cost-reflective in the context of their
market actors. specific legal and regulatory framework. Third, member
states can choose the level of effort they devote to enabling the
Critical Issues and Future Opportunities uptake of energy communities. It is up to them, for example,
to define the financial and human resources that are allocated
The Devil Is in the Details to support public authorities willing to participate in commu-
With the CEP, the EU amended its legal framework in a way nity-driven initiatives or to simply facilitate their establish-
that is more favorable to consumer engagement. By address- ment by third parties. Finally, member states are free to pre-
ing several of the weaknesses that characterize both indi- serve already existing forms of energy communities and to
vidual and collective initiatives, the set of rights and duties create additional types as well, as long as the minimum level
introduced at the European level provides the basis for the of rights and duties prescribed for CECs and RECs in the two
empowerment of and a more active participation by consum- directives is observed. Alternative implementation scenarios
ers in the electricity sector and the energy transition. How- are possible in this regard (see Figure 3).
ever, as is often the case in the EU, the current legislative Depending on the actual choices by member states, the
framework only sets the direction that national laws and reg- development path of energy communities is likely to dif-
ulations must follow. Member states now have to transpose fer in the various countries, extending the heterogeneous
that framework to the national level, potentially adapting it situation that is currently visible in Europe (see Table 1).
to their particular conditions and policy preferences. Nonetheless, this period of experimentation that follows
the adoption of the CEP may
allow, over time, the identifica-
tion of best practices and most
convenient solutions. In turn, this
National
may lead in the future to more
Model
RED II detailed and harmonized rules
Privileges

Privileges

being adopted at the EU level.

RED II Convergence in the evolution of
energy communities may then
IEMD
IEMD
follow across the continent.

How to Support the

Inclusiveness Inclusiveness
Uptake of Energy
Box Ticking Restrictive National Model
Communities?
Energy communities can poten-
tially provide several benefits to
RED II
the energy system and to society
in general. However, these ben-
Privileges

Privileges

Na

efits may not materialize due to

tion

IEMD RED II
the limits of collective action we
al M

saw earlier and the difficulties of

od

National Model
els

IEMD operating in a sector, the energy

one, whose rules were devel-
Inclusiveness Inclusiveness oped with large, profit-driven
Inclusive National Model Tailor-Made Approach organizations in mind. Hence,
it makes sense that governments
figure 3. Different implementation scenarios by member states. (Source: adapted put in place an enabling frame-
from M. Jasiak, “Prosumers in the clean energy package—Way forward,” presented work to support energy commu-
at the 2019 EUSEW, Brussels, Belgium, Jun. 19, 2019; used with permission.) nities flourishing.

42 IEEE power & energy magazine july/august 2023

 How to enable or support the uptake of energy communi- is particularly important to activate specific categories of
ties is a debated topic, though. It is so for at least two reasons. consumers, such as the vulnerable ones or those living in
First, energy communities are multifaceted; they can take social housing.
several forms and be involved in many different activities.
Depending on the form assumed or the activities they focus The Energy Crisis as an Opportunity
upon, energy communities are likely to face different bar- The EU is currently facing a severe energy crisis. On one
riers and generate different benefits to society. In turn, this hand, the skyrocketing prices caused by the Russian inva-
characteristic calls for different support schemes. Second, sion of Ukraine are reducing the welfare of European citi-
introducing forms of dedicated support is likely to generate zens and firms. On the other hand, the need exists to deeply
costs for other market parties and stakeholders or the soci- transform the energy system to mitigate climate change over
ety at large. A balanced approach that ensures efficiency and the coming decades. This gloomy situation can turn into an
fairness must be then identified when developing any sup- opportunity, though.
port measure. As mentioned earlier, the wave of new energy communi-
An example that illustrates this tradeoff is provided by ties observed in the last two or three decades in Europe was
the case of network charges for energy communities involved mostly related to the activism of a relatively small number of
in energy sharing at the local level, also known as collec- people and organizations that wanted a greener and more local
tive self-consumption. By using electricity locally, a com- supply of energy. Those people and organizations were ready
munity can reduce energy losses and minimize the need to commit time and money to set up collective initiatives and
for network expansion. In some cases, it may also reduce contribute, by this way, to environmental sustainability and a
balancing costs. These savings undoubtedly represent a reduced reliance on traditional energy companies.
benefit for the system and may justify a discount on the The situation is very different today for at least three
standard network charges applied to the electricity shared, reasons. First, energy is a topic of significant interest for a
in particular for the part relating to transmission. How- large part of the population, because of either the increasing
ever, the benefits of local energy sharing are usually far bills or the growing awareness of the threat posed by climate
from justifying a complete rebate of those charges. First, change. Second, community investments in renewable-based
the members of such a type of community normally con- plants are now a source of energy with relatively stable and
tinue to rely on the local grid to share the electricity they competitive costs. Communities that procure energy from
self-consume and on the main grid to receive electricity those plants, either by directly owning them or via long-term
when community generation does not produce. Second, the power purchase agreements with independent producers, are
reduction in network peak demand, the main cost driver for shielded, at least partially, from the vagaries of wholesale
networks, may be much more limited than the reduction in prices and the increasing cost of fossil fuels. Third, digi-
the amount of the electricity consumed locally and com- tal technologies allow the active and coordinated manage-
ing from the main grid; the savings for the system associ- ment of distributed energy resources, including those on the
ated with local energy sharing would then be rather small. demand side, and the exploitation of the benefits associated
Third, exempting community members from contributing with the integration of different energy sectors at the local
to the recovery of network costs could simply shift those level (e.g., electricity and heating).
costs onto consumers that are not part of the community For all these reasons, today, the opportunity exists for
and may be unable to join one; an issue of equity is imme- energy communities to play a larger role than in the past
diately visible in this regard. and help the EU deal with the current energy crisis. How-
For these and similar reasons, the emerging view among ever, to seize this opportunity, the right policy and regu-
regulators and policymakers is that energy communities latory choices must be implemented by policymakers and
should be enabled by the introduction of explicit subsidies regulators. This means, first of all, the full transposition
rather than by implicit subsidies hidden in noncost-reflec- of the two European directives and the adoption of the
tive network tariffs. Subsidies should incentivize commu- related enabling frameworks for energy communities at
nities to decrease system costs and be potentially linked the national level, something that not all EU member states
to the deployment of new renewable generation capacity. have already done. Second, it means that the policy reac-
In addition, great attention should be paid to the removal tion to the explosion in energy prices should not “mute” the
of those regulatory barriers and elements of the electricity incentives for consumers to get engaged, either individu-
market design that are a legacy of the past and may not be ally or collectively. Unfortunately, the opposite seems to be
justified anymore (e.g., certain constraints on the participa- the case. In some countries, governments have frozen retail
tion of small assets to wholesale electricity markets and bal- prices below costs for all consumers and not just for those
ancing mechanisms). In general, public authorities should in poverty or more vulnerable. Network and policy costs
play a more important role in raising awareness and provide have been often moved to the state budget, while in some
technical and financial assistance to those consumers that cases, new taxes targeting windfall profits or additional
want to set up an energy community. This type of support obligations on energy companies have been introduced.

july/august 2023 IEEE power & energy magazine 43

 Energy cooperatives were usually not spared from these in how to implement the obligations imposed on them by the
penalizing measures. EU legislator, in particular with regard to the definition of
This reaction of governments to the surge in energy prices the enabling framework for energy communities. Depend-
is understandable, given the political pressure exerted by ing on their choices, the development of energy communi-
consumers. However, trying to protect consumers by isolat- ties may follow different paths. However, to avoid inefficient
ing them from price dynamics may weaken the motivations and unfair results, member states should adopt a balanced
for a growing number of them to become active and more approach and try to incentivize only those initiatives that
directly engaged, individually or collectively, with electric- will enhance social welfare and not just the welfare of com-
ity markets and the energy transition in general. If that is the munity members, to the detriment of the rest of the energy
case, the current crisis may turn into a missed opportunity system and society. The severe crisis that Europe is facing
for the EU and its energy communities. in energy can represent an opportunity for consumers to
fruitfully raise their level of participation in the energy sec-
Conclusions tor. Nevertheless, the delays in the transposition and proper
The decarbonization of the energy system requires a shift implementation of the new legal framework, combined with
from a centralized paradigm that relies on the exploitation some of the measures adopted by governments to shield con-
of fossil fuels to a more decentralized paradigm that relies sumers from the consequences of high and volatile energy
on the development of local solutions to integrate and exploit prices, are deterring the creation and growth of energy com-
renewable energy sources. The engagement of consumers is munities. By doing that, the EU may miss an opportunity to
an important element of this shift. Consumers can engage in advance toward a more sustainable, not only from an envi-
energy both individually and collectively. In the latter case, ronmental point of view, energy system.
they can form an energy community, a collective actor that
is typically characterized by a democratic governance and a For Further Reading
noncommercial nature. Energy communities are not a new C. Alaton and F. Tounquet, “ASSET study on energy com-
phenomenon, but their growth in size and number has been munities,” European Commission, Luxembourg City, Lux-
noticeable in recent years. By mobilizing the resources of embourg, Jun. 2020. [Online]. Available: https://op.europa.
multiple consumers and building on the trust existing among eu/en/publication-detail/-/publication/4b7d5144-91c9-11eb
members, energy communities can achieve a certain level -b85c-01aa75ed71a1/language-en
of economic efficiency and solve issues related to the social “Regulatory aspects of self-consumption and energy
acceptance of new infrastructures. For this reason, they have communities,” Council of European Energy Regulators,
the potential to be an important player in the energy transi- Brussels, Belgium, C18-CRM9_DS7-05-03, Jun. 2019.
tion. However, this potential can fail to become reality due [Online]. Available: https://www.ceer.eu/documents/104400/
to some weaknesses typical of collective action, such as the -/-/8ee38e61-a802-bd6f-db27-4fb61aa6eb6a
difficulty in dealing with complex and uncertain procedures. M. Jasiak, “Energy communities in the EU: Challeng-
Conscious of the challenges posed by the rapid transition es for the implementation of the EU legal framework,” in
to a low-carbon energy system and the need to have consum- European Energy Law Report, vol. XIV, M. Roggenkamp
ers on board, the EU has proposed a new deal, recognizing and C. Banet, Eds. Cambridge, U.K.: Intersentia, May 2021,
the right for consumers to actively participate in all electric- pp. 197–218.
ity markets and contribute to the development of renewables. S. Löbbe, D. Robinson, and F. Sioshansi, Eds. Energy
This right can be exercised as individual active customers Communities: Customer-Centered, Market-Driven, Wel-
and individual renewables self-consumers or collectively by fare-Enhancing? London, U.K.: Elsevier, 2022.
joining a CEC or an REC. A CEC is a new actor of electric- “Energy communities under the clean energy package:
ity markets that allows consumers to participate on a level Transposition guidance,” REScoop.eu and ClientEarth,
playing field with traditional players. This actor is not bound Brussels, Belgium, Jun. 2020. [Online]. Available: https://
to a specific place nor to the exclusive use of renewables. www.clientearth.org/latest/documents/energy-communities-
On the contrary, an REC is a social organization that allows under-the-clean-energy-package-transposition-guidance/
consumers to deal with renewables, also beyond electricity S. Verde and N. Rossetto, “The future of renewable en-
generation, and directly benefit from it, without the need to ergy communities in the EU: An investigation at the time of
rely on the support of traditional actors. Given their poten- the clean energy package,” Eur. Univ. Inst. Robert Schuman
tial role in decarbonization, RECs are entitled to an enabling Centre Adv. Stud., Florence, Italy, Aug. 2020. [Online].
framework that promotes and facilitates their development. Available: https://cadmus.eui.eu/handle/1814/68383
The new European legal framework set the scene for the
offtake of energy communities but is not sufficient by itself. Biography
Its actual transposition at the national level will be essential Nicolò Rossetto is with the Florence School of Regulation,
to the successful development of energy communities over European University Institute, 50133 Florence, Italy.
p&e
the coming years. EU member states have significant leeway

44 IEEE power & energy magazine july/august 2023

From
“Fit and Forget” to
“Flex or Regret”
in Distribution Grids
IMAGE LICENSED BY INGRAM PUBLISHING

Dealing With Congestion

in European Distribution Grids

By Ellen Beckstedde and Leonardo Meeus

T
THE SUPPORT OF DECENTRALIZED ENERGY Introduction
resources under the Fit for 55 package and the REPowerEU In this article, we describe the need, organization, and open
plan places distribution grid users and distribution system issues of congestion management in distribution grids. We
operators (DSOs) at the center of the future European focus on Europe, and we will address the following ques-
energy system. Also, the interaction between both types of tions. Do we already have congestion in distribution grids,
agents is gaining importance for two reasons. First, DSOs and how did that happen? Do we plan to have more conges-
face challenges connecting these new grid users to their tion in distribution grids, or will we avoid congestion with
network, leading to an increased need for grid investments investment planning? How do DSOs procure grid services to
and congestion management measures. Second, engaging solve congestion, and what are the main differences? What
these new grid users can bring opportunities for DSOs are some of the open issues?
to manage their network and its possible congestion
more efficiently. Do We Have Congestion in Distribution
Grids, and How Did That Happen?
In Europe, DSOs are increasingly faced with congestion in
Digital Object Identifier 10.1109/MPE.2023.3269545
their grids. It started in countries like Germany with injec-
Date of current version: 21 June 2023 tion peaks caused by wind and solar farms that created

july/august 2023 1540-7977/23©2023IEEE IEEE power & energy magazine 45

 situations with more generation than load in some areas, areas indicate where congestion management measures are
sometimes congesting the local lines or transformers. already in place. Yellow means that the connection is uncer-
It then spread to countries like The Netherlands, where tain; there is an application procedure to follow that will
DSOs started to experience congestion due to generation tell if you can connect. Only in transparent zones can you
peaks from renewables and load peaks from new data cen- connect without capacity limitations.
ters. The next wave of grid congestion is expected to come The ongoing debate in The Netherlands is to what
from electric vehicles (EVs). Leading countries in EV pen- extent the DSOs should continue connecting new grid
etration, like Norway, already have distribution grid con- users. The more they overbook the network, the more
gestion caused by EV charging. The United Kingdom is they will need to resort to congestion management in
also experiencing congestion in distribution grids, which peak hours. If they do not overbook, the connection
is mainly driven by EVs or renewable generation, depend- queues start to be awkwardly long. As a result, they have
ing on the area. entered into discussions on who should get priority to
As illustrated by Figures 1 and 2, heatmaps or hosting connect. Should it be a local housing project or a data
capacity maps are often used by DSOs to report congestion, center of a multinational? Should it be first come, first
but there are different practices. served, or should there be auctions for distribution grid
Figure 1 is an image from The Netherlands for new connection capacities?
grid connections of load [Figure 1(a)] and generation [Fig- Figure 2 is an illustration from the DSO Schleswig-
ure 1(b)]. Red means that all network capacity has been Holstein Netz in Germany. The colors represent the num-
reserved for other grid users, and you cannot connect any- ber of hours renewable generators have been curtailed in a
more in that area. Orange indicates that you cannot connect selected period. Red means that you can still connect new
unless certain congestion management measures are taken. renewable generation projects, but you have a higher risk of
Depending on the case, these measures can be limited being curtailed if you do. For example, renewable generators
capacity contracts or market-based redispatch. The shaded located in the dark red zones of Figure 2 were curtailed for

Network Capacity to Connect Load: Network Capacity to Connect Generation:

Available Available
Limited Available Limited Available
Only Available With Congestion Management Only Available With Congestion Management
Not Available Not Available
Not Available, Congestion Management Applied Not Available, Congestion Management Applied
Not Available, Congestion Management Applied Not Available, Congestion Management Applied
(a) (b)

figure 1. Network congestion heatmap of The Netherlands. (Source: Netbeheer Nederland; https://capaciteitskaart.
netbeheernederland.nl/.)

46 IEEE power & energy magazine july/august 2023

more than 16,000 h in 2022. Green means that no curtail- than transmission. For instance, the IEEE community has
ment was necessary for that area. already worked on theoretical models for distribution loca-
German DSOs used to curtail renewables in real time at tional marginal pricing. However, these approaches are not
the cost of the lost revenues of these generators under the yet considered an actual solution to manage congestion in
so-called feed-in management regime. In October 2021, distribution grids.
this regime was replaced by Redispatch 2.0. In more detail,
congestion is now managed by a schedule-based process Do We Plan to Have More Congestion
that contains several validation loops between DSOs and in Distribution Grids, or Do We Need
transmission system operators (TSOs) and ends 15 min Better Planning to Avoid Congestion?
before real time. All generators, such as renewable energy, For more than a decade, European transmission investment
combined heat and power plants, conventional units, and plans have been publicly discussed. These national plans
storage facilities, with an installed capacity above 100 kW are developed with standardized methodologies and coordi-
must provide congestion management services. To ensure nated by a pan-European strategy. This exercise, led by the
cost efficiency, system operators select generators based European Network of TSOs for Electricity (ENTSO-E), is
on their imputed costs, which consider the technical referred to as the Ten-Year Network Development Plan. The
impact of the generator on the congestion issue and the plan, which is updated and improved every other year, has
feed-in priority for renewables. A final difference is that been an impressive achievement of harmonization and col-
system operators have to compensate for the lost revenues laboration across many countries.
of the generators and the imbalance costs of its balancing In the first two decades of electricity market reforms,
responsible party. congestion in distribution grids has not been an issue. But
In many other European countries, congestion in distri- recently, it became evident that distribution grids can turn
bution grids is still far from being a concern for stakehold- into a bottleneck for the functioning of the European elec-
ers. However, the lessons learned from countries like the tricity market and the transition toward a more sustain-
ones mentioned reveal that congestion can rapidly become able energy system. Article 32 of Electricity Directive
an issue in certain zones, catching DSOs unprepared. The 2019/944 of the European Union (EU) Clean Energy Pack-
decisions for grid users to invest in renewable generation, age introduced several new regulations for distribution
build a new data center, or switch to an EV are quicker than network planning. The legislation uses the terminology
the typical grid expansion planning and execution processes. “network investment plans for distribution systems,” but
This issue is already well known in transmission grids, and some are already talking about Ten-Year Network Devel-
the same is now happening at the distribution level. The opment Plans for distribution. DSOs have promoted the
main difference is that including network constraints in mar- EU DSO Entity, aimed at replicating the role of ENTSO-E,
ket pricing algorithms is more challenging for distribution to develop a new methodology for the future investment

Total Curtailment Period in 2022:

No Data
0h
1–800 h
800–1,600 h
1,600–2,500 h

figure 2. Network congestion heatmap of Germany. (Source: Schleswig-Holstein Netz https://www.netzampel.energy/

shnetz/historical.)

july/august 2023 IEEE power & energy magazine 47

 The legislation uses the terminology “network investment
plans for distribution systems,” but some are already talking
about Ten-Year Network Development Plans for distribution.

plans of distribution grids that all DSOs will apply. In the response from end users. The first European plan treats
meantime, different approaches to designing these network flexibility as an assumption, while European legislation
investment plans are emerging. asks DSOs to consider the tradeoff between flexibility
On the one hand, DSOs gathered via their industry asso- and expansion of the network in their upcoming network
ciations and asked consultants to produce a first European development plans.
plan as a dry run. On the other hand, DSOs have already ✔ An example of DSOs that have published their first
published the first version of their local plans to comply with version of a multiannual network investment plan fol-
the new regulations of the Clean Energy Package. We now lowing the new regulations of the Clean Energy Pack-
introduce both approaches. age is Fluvius, the DSO active in the north of Belgium.
✔ The first European plan was developed by Eurelectric, Figure 4 is a picture of this study that shows the level
Monitor Deloitte, and E.DSO. The study argues that eve- of congestion the DSO expects in each municipality
ning peaks of households will drive congestion and invest- of the region by 2030 if it does not expand the net-
ments in distribution grids and illustrates this with the work. Fluvius also qualitatively discusses alternative
European version of the duck curve, reflecting the impact solutions to manage congestion, such as dynamic net-
of solar production mainly around noon. Figure 3, tak- work operation, distribution network tariffs, manda-
en from this study, argues that investments in the next tory flexibility services, and market-based flexibility
10 years will need to increase annually between 50% and procurement. Although an extensive tradeoff mecha-
70% (from an average of €23 billion per year to between nism between flexibility and network investment has
€34 and €39 billion per year). Important assumptions for yet to be included, Fluvius describes the first building
such a plan are the renewable energy objectives and the blocks of how this mechanism will look. To further
ambition to electrify transport and heating. Even though develop its strategy, it will focus on flexibility prod-
most European countries have clear national targets, in- ucts for congestion management in its high voltage
ferring the future impact on local distribution grids is not network with a minimum investment cost of 100 k€
always obvious. Another key assumption is the level of (50 potential projects per year).
flexibility that will be available, which will depend on There is not yet a consensus on the actual potential of
the incentives in place to manage peaks and the resulting flexibility as an alternative to distribution grid investments.
Some argue that cost-reflective
distribution network tariffs would
bring enough incentives for grid
34–39
users to reduce their peaks. We
+11–16 €bn 2015–2019 ~23 believe there is a potential for
(+50%–70%) DSOs to do more than provide
26 cost-reflective signals via their net-
25
22 22 Energy work tariffs. One reason to defend
23 21
Transition 8–11
the need to explicitly procure flex-
ibility is that tariffs will always
Digitalization
3–5
depend on the grid users’ voluntary
and Others response and be imperfect as they
compromise between cost-reflec-
tiveness and other principles, such
2020–2030 34–39
as fairness and simplicity. Another
2015 2016 2017 2018 2019 Avg. Annual
Investments reason is that investment planning
2020–2030 under uncertainty can result in
unexpected congestion.
figure 3. Expected increase in annual distribution network investments in Europe The European countries that
and its main drivers. Avg.: average. (Source: Eurelectric, Eurostat, the IEA, DSOs and currently experience congestion
national associations, and Monitor Deloitte, 2021.) in distribution grids indeed did not

48 IEEE power & energy magazine july/august 2023

plan for it, but they still have to deal with it. The experience financed by the EU’s Horizon 2020 research and innovation
has shown that DSOs cannot simply stop all requests to con- program and the countries that have hosted the demonstrations.
nect to distribution grids; they are subject to significant pres- DSOs with a lot of congestion in their networks evolved
sure to overbook and manage the congestion resulting from from demonstration projects to full-scale flexibility markets.
this overbooking. An additional concern is that grid users Some DSOs, such as Enedis and Enel, have developed their
could start to create congestion, anticipating that they can get own platforms to tender flexibility services, but market plat-
paid to solve it (i.e., inc-dec gaming). Gaming is a valid con- forms owned and operated by third-party companies also
cern limiting the potential of market-based flexibility, but we entered this space. In what follows, we will discuss three
believe it will not apply equally in all situations. When and of these third-party platforms that are currently the most
how DSOs will contract flexibility also plays a role, which is relevant ones in Europe in terms of procured volumes or
what is discussed next. capacities: NODES, Piclo Flex, and GOPACS. All initiatives
started in countries that were among the first to experience
How Do DSOs Procure Grid Services congestion in distribution grids: Norway (and Germany) for
to Solve Congestion, and What Are the NODES, the United Kingdom for Piclo Flex, and The Neth-
Main Differences? erlands for GOPACS.
Many DSOs in Europe have set up demonstration projects to ✔ NODES is an independent market platform founded as
test flexibility services to manage (potential) congestion in a joint venture between the Norwegian utility company
their grids. Figure 5 illustrates some of the biggest projects Agder Energi and one of the leading power exchanges

%Congestie/
Gemeente
0–10
10–20
20–30
30–40
40–50
50–60
60–70
70–80
80–90
90–100

0 10 20 km

figure 4. Expected share of congestion per municipality by 2035 if the network is no longer expanded. (Source:
Fluvius, 2022.)

figure 5. Projects funded by the EU’s Horizon 2020 research and innovation program focused on developing new
flexibility services.

july/august 2023 IEEE power & energy magazine 49

 in Europe, Nord Pool. Today, all shares of NODES are gives an overview of the procured capacities (MW)
owned by Agder Energi. NODES is an open-market over the years for UK Power Networks (UKPN) and
platform that acts as an intermediary between stake- SP Energy Networks (SPEN), which currently have or-
holders for all market-related tasks. The products are ganized most competitions on the Piclo Flex platform.
adapted to the local characteristics and needs of the Contracts were typically awarded to technologies such
involved market parties. Two types of products can as EVs, gas engines, batteries, biomass, and commer-
be traded on NODES among different time horizons. cial demand side response. Besides that, it must be
ShortFlex products are exchanged close to real time in noted that no flexibility tenders were coordinated by
a continuous market. LongFlex products are reserved SPEN in 2022 because of successfully tendered mul-
by the grid operator for a certain time and awarded via tiyear contracts in 2021, which reduced the need for
a tendering process. NODES has already proven its congestion management services and the availability of
market concept in countries such as Norway, Germa- flexible service providers in the 2022 tenders.
ny, Sweden, and the United Kingdom. Table 1 shows ✔ GOPACS was founded in 2019 by the Dutch transmis-
the traded ShortFlex volumes and reserved LongFlex sion and distribution system operators. Rather than being
capacities over the years in their biggest demonstra- an additional market platform, GOPACS acts as an in-
tor, NorFlex, a shared flexibility market between the termediary between the network operators and existing
Norwegian TSO Statnett and the DSO Adger Energi. energy markets, such as the Amsterdam Energy Trad-
Typical flexibility providers in NorFlex are aggrega- ing Platform and the European Power Exchange. Bids
tors offering flexibility from industrial buildings, submitted to these intraday market platforms become
commercial buildings, and households. available on GOPACS if a locational tag is added. In this
✔ Piclo Flex, a privately owned start-up mostly active in way, these bids can be activated by system operators to
the United Kingdom, is a market platform designed relieve congestion in their network or by other market
for DSOs to procure flexibility services and operates parties for other purposes. Flexibility providers that are
separately from existing energy markets. Four types not acting in existing electricity markets can also bid on
of contracts are typically traded on the Piclo Flex the GOPACS platform using a specific client portal. An-
platform and are defined by the Energy Networks As- other typical feature of GOPACS is that system operators
sociation (ENA) in the United Kingdom and Ireland: must counterbalance their activated flexibility with bids
1) sustain products set predefined schedules for flex- outside the congested zone to maintain the balance in the
ible resources to manage predictable, low-risk network network. Table 1 shows the procured volumes (MWh)
constraints; 2) secure products require flexibility pro- by the largest DSO buyer, Liander, which are traded as
viders to be available at peak times to react to real-time part of their pilot in Neerijnen. The table also contains
network conditions; 3) dynamic products support DSOs the traded volumes of the TSO TenneT to show that the
during specific events, such as maintenance; and 4) re- volumes of Liander are still relatively small in compari-
store products help system operators activate flexibility son. However, the traded volumes by DSOs are expected
services in real time during unplanned network events. to grow with the rollout of a new congestion manage-
DSOs in the United Kingdom use Piclo Flex to tender ment product for DSOs that was introduced in the Dutch
these products for contracts with different lengths, from Electricity Network Code at the end of 2022. This new
one-year contracts up to seven-year contracts. Table 1 product has three changes compared to the current redis-
patch products traded
on GOPACS: there is
table 1. Contracted capacity or traded flexibility volumes on
no minimum amount
third-party market platforms.
of market participants,
2019 2020 2021 2022 Unit there are no counter-
NODES (NorFlex) — — 225.2 734.6 Traded volume [MWh] balancing measures re-
quired, and there is the
NODES (NorFlex) — — — 3.38 Contracted capacity [MW]
possibility to close long-
Piclo Flex (UKPN) 19.3 123 350 367.6 Contracted capacity [MW] term contracts.
Piclo Flex (SPEN) 53.3 139.6 555 — Contracted capacity [MW] A fundamental differ-
ence in the approaches of the
GOPACS (Liander) — 69.2 111.3 7.6 Traded volume [MWh]
United Kingdom, The Neth-
GOPACS (TenneT) 36,552.1 53,887.8 142,997.6 181,933.1 Traded volume [MWh] erlands, and Germany exists.
UKPN: UK Power Networks; SPEN: SP Energy Networks. (Sources: NODES, https:// In the United Kingdom, the
nodesmarket.com/market-data; UKPN, https://smartgrid.ukpowernetworks.co.uk/flexibility DSOs really plan for flexibil-
-hub/; SPEN, https://smartgrid.ukpowernetworks.co.uk/flexibility-hub/; and GOPACS, https:// ity. They make the tradeoff
smartgrid.ukpowernetworks.co.uk/flexibility-hub/.
between distribution grid

50 IEEE power & energy magazine july/august 2023

expansions and procuring flexibility. UKPN, for example, regulation schemes developed to address this issue have
recently committed in their RIIO-ED2 Business Plan 2023– reached an inadvisable level of complexity. Considering that
2028 to 410 million £ of deferred load-related investments DSOs are under pressure anyway to keep their network tar-
through the use of low-voltage flexibility. They estimated iffs under control, maybe the current push for more transpar-
the cost of the flexibility services based on their experience ent network investment plans can be sufficient to compensate
with flexibility tenders. The DSOs in The Netherlands did for the financial disincentive.
not plan to use flexibility. They are forced to overbook the
grids as they cannot follow the demand for grid connections In What Situation Will We Use Which
and then have to procure flexibility to solve the resulting Approach to Source Flexibility?
congestion in their grids. This situation is not the result of a While the main focus of this article is on flexibility markets,
cost-benefit analysis. there are also other ways to source flexibility. Generally, the
The DSOs in Germany are also in a different situation. provision of flexibility can be mandatory or voluntary, and
They have also been overbooking their grids because there flexibility contracts can be short or long termed. Table 2
was a bigger demand for grid connection than they could illustrates both approaches by mapping different flexibility
offer, leading to high curtailment rates in certain areas. tools on these two dimensions. While each approach has its
However, after controlling the most severe capacity issues opportunities and disadvantages, the magnitude of these effects
with network investments, German DSOs can do a cost- still needs to be determined. As a result, DSOs are examin-
benefit analysis to compare the cost of curtailment with ing different ways to contract flexibility in their networks. For
the investment cost to expand their grids. In more detail, example, the Dutch DSO Liander currently considers four con-
they can consider a curtailment of 3% of the annual out- gestion management alternatives to connect new grid users in
put of each connection point in their network planning. In congested network areas. Two types of short-term flexibility
this context, buying flexibility services can be an alterna- markets are tested using the GOPACS platform characterized
tive to compensating grid users for curtailing them. In other by voluntary or mandatory participation of this new grid user
words, the German situation nicely illustrates how we can in the market. Besides that, new grid users can also enter two
avoid DSOs being at the mercy of flexible service providers kinds of long-term connection agreements, with and without
to solve congestion in distribution grids (the biggest worry day-ahead curtailment announcements by the system operator.
of some skeptics). It will be interesting to learn more from theory and practice
about the optimal approach to source flexibility and the inter-
What Are Some of the Open Issues? dependence of this choice on local network characteristics,
There are many open issues. In what follows, we illustrate a few. such as the number of available flexible resources, grid topol-
ogy (rural, urban, etc.), voltage level (low voltage, medium
Does Incentive Regulation Need to Be voltage, etc.), and congestion cause (renewables, EVs, data cen-
Enhanced to Make Sure DSOs Consider ters, etc.). Also, it will be important to better understand the
Flexibility as an Alternative to Investments? pros and cons of combining different flexibility tools. While
Flexibility services are operating expenditures (OPEX), and incompatibilities among the different approaches might exist,
DSOs typically have efficiency benchmarks for OPEX with we also see opportunities for combining them, for instance,
rewards if they outperform their OPEX baseline and pen- long-term flexibility contracts (voluntary or mandatory) with
alties if they underperform. Distribution grid investments, shorter term flexibility markets.
however, are treated differently as capital expenditures
(CAPEX). Once approved, CAPEX enter into the regulated How Do We Ensure Coordination
asset base, on which the DSO receives a regulated rate of Between TSOs and DSOs?
return. When DSOs use flexibility as an alternative to dis- We have discussed the challenges and opportunities of
tribution grid investments, OPEX (cost of flexibility ser- procuring flexibility from a DSO perspective. However,
vices) increase and CAPEX (cost of investments) decrease,
negatively impacting their efficiency benchmarks and
return on investments. table 2. Illustration of the two approaches to source
The regulatory authority in the United Kingdom, Ofgem, flexibility using existing flexibility tools.
has been one of the first to address this financial disincen- Mandatory Voluntary
tive by introducing what it refers to as the total expendi-
Short term • Flexibility markets
tures (TOTEX) approach. It implies that a fixed share of the
TOTEX (OPEX and CAPEX) can enter into the regulated Long term • Default nonfirm • Flexibility markets
connection contract • Choosing
asset base, which gives DSOs incentives to consider flex- • Grid connection between firm
ibility as an alternative to grid investments. Today, there is requirements and nonfirm
an ongoing discussion on whether to address this disincen- connection
agreement
tive with regulatory measures. The most advanced incentive

july/august 2023 IEEE power & energy magazine 51

 the DSO’s activation of flexibility might also impact other 4) Open issues regarding congestion management in
energy stakeholders, such as the TSO. There are at least distribution grids include the financial incentives for
two interactions between TSOs and DSOs to consider. DSOs to consider flexibility as an alternative to grid
First, TSOs and DSOs might want to access the same flex- investments, the best approach for DSOs to contract
ible resources for different grid services, such as congestion flexibility regarding local network characteristics, and
management and balancing. This competitive interaction the coordination between the DSO and other stake-
among system operators might create a need for cooperation holders, such as the TSO.
or sequence in selecting flexible units. Second, TSOs and In other words, when “fit and forget” is not an option
DSOs might impact each other’s networks when activating anymore, we will have DSOs that proactively engage in
flexible resources for their own purposes. When the activa- flexibility and DSOs that might regret they did not; hence
tion of flexibility moves closer to real time, there might be a the title.
need for coordination or validation mechanisms between the
system operators to avoid network issues. For Further Reading
Many stakeholders and academics have already recog- E. Beckstedde et al., “EUniversal Deliverable 10.3: Regula-
nized the importance of TSO–DSO coordination, which led tory recommendations for flexibility options and markets,”
to the development of different coordination schemes for 2022. [Online]. Available: https://euniversal.eu/wp-content/
the TSO’s balancing and the TSO’s and DSO’s congestion uploads/2022/01/EUniversal_D10.3_Regulatory-recommen
management services. However, translating these coordina- dations-for-flexibility-options-and-markets-2.pdf
tion schemes into practice is often difficult because of the “TSO-DSO report: An integrated approach to active sys-
complexity of the problem and the required information shar- tem management,” CEDEC, EDSO, ENTSO-E, Eurelectric,
ing among the stakeholders. Therefore, new regulations to GEODE, Brussels, Belgium, TSO-DSO Rep. 2019. [Online].
manage the described interactions among system operators Available: https://docstore.entsoe.eu/Documents/Publications/
might arise in the meantime. An example is the European Position%20papers%20and%20reports/TSO-DSO_ASM
System Operation Guideline, which allows DSOs to refuse _2019_190416.pdf
the participation of flexible resources to the TSO balancing S. Chondrogiannis, J. Vasiljevska, A. Marinopoulos, I.
market based on technical reasons. It is only remains to see Papaioannou, and G. Flego, “Local electricity flexibility
how these rules and coordination schemes will evolve in the markets in Europe,” European Union, Luxembourg City,
coming years. Luxembourg, Tech. Rep. JRC130070, 2022.
“Active power services implementation plan,” Energy Net-
In Summary works Association, London, U.K., 2020. [Online]. Available:
This article has four key takeaways, each relating to one of https://www.energynetworks.org/industry-hub/resource-library/
the discussed questions on congestion management in distri- open-networks-2020-ws1a-p3-final-implementation-plan.pdf
bution grids. “Connecting the dots: Distribution grid investment to pow-
1) DSOs in European countries, such as Germany and er the energy transition,” Eurelectric, Brussels, Belgium, 2021.
The Netherlands, increasingly face congestion in their [Online]. Available: https://www.eurelectric.org/connecting
distribution networks because of the connection of re- -the-dots/
newables, EVs, and new loads, like data centers. Heat- L. Meeus, E. Beckstedde, and A. Nouicer, “Towards a
maps or hosting capacity maps are typically used by regulatory framework for the use of flexibility in distribu-
DSOs to report their congestion issues to grid users, tion grids,” Oxford Energy Forum, Future of Energy Net-
and different practices exist. works Issue, Oxford, U.K., 2022. [Online]. Available: https://
2) Current practices on distribution network plans show www.oxfordenergy.org/publications/the-future-of-energy
the need for increased grid investments in the com- -networks-in-a-decarbonized-world-issue-134/
ing year to control congestion levels and recognize the “Investeringsplan 2023-2032,” Fluvius, Melle, Belgium,
opportunity for flexibility to contain these investment version 8, Jun. 2022. [Online]. Available: https://over.fluvius.
costs. However, there is not yet a consensus on the ac- be/sites/fluvius/files/2022-06/investeringsplan-2023-2032.
tual potential of flexibility as an alternative to distri- pdf#page=6
bution grid investments.
3) Third-party market platforms, such as Piclo Flex, Biographies
GOPACS, and NODES, are tapping into this opportu- Ellen Beckstedde is with Vlerick Business School, 9000
nity for flexibility and quickly growing over the years. Ghent, Belgium and KU Leuven, 3000 Leuven, Belgium.
These flexibility markets are used by DSOs for dif- Leonardo Meeus is with the European University In-
ferent reasons (e.g., to trade flexibility proactively or stitute, 50133 Florence, Italy; KU Leuven, 3000 Leuven,
out of necessity) and have developed diverse types of Belgium; and the Florence School of Regulation, 50133
products, time frames, and interactions with existing Florence, Italy.
p&e
markets and system operators.

52 IEEE power & energy magazine july/august 2023

 IMAGE LICENSED BY INGRAM PUBLISHING

From the
Humble Building
to the Smart
Sustainable Grid
Empowering Consumers,
Nurturing Bottom-Up Electricity Markets,
and Building Collaborative Power Systems

R
RECENT GEOPOLITICAL DEVELOPMENTS HAVE PLACED GLOBAL DECAR-
bonization at the top of the global agenda. However, moving toward a low-carbon energy
system is challenging. The exponential growth of renewable technologies introduces
unprecedented uncertainty in the operators’ decision-making process, while the increas-
ing electrification leads to drastic increases in demand, further straining the power grid.
The behavior of electricity customers is no longer a passive parameter of system operation

By Iason-Iraklis Avramidis , Florin Capitanescu ,

Geert Deconinck , Himanshu Nagpal , Per Heiselberg ,
and André Madureira
Digital Object Identifier 10.1109/MPE.2023.3269538
Date of current version: 21 June 2023

july/august 2023 1540-7977/23©2023IEEE IEEE power & energy magazine 53

 These enablers are still nascent, currently lacking widespread
engagement and sufficient fertile ground to fully unlock their
bottom-up flexibility potential.

but an active part of it. Demand-side flexibility has been systems. It centers on the chain of increasing sustainability
identified as a critical piece of the puzzle, i.e., stimulating (see Figure 1): pure consumers, passive prosumers, smart
customers to modify their consumption patterns and con- and sustainable buildings (SSBs), local energy communi-
tribute to the energy supply through local production. Resi- ties (LECs), and finally smart sustainable distribution grids
dential, office, and commercial buildings contribute roughly underpinning a clean energy transition.
30%–40% of the total energy consumption, hence holding
massive potential to offer flexibility services. The State of Buildings in 2022 and the
To unlock this potential, individuals need to be provided Prospect of Demand-Side Flexibility
with the necessary technological means [e.g., building
energy management systems (EMSs)] plus efficient local Where Are We?
electricity markets for trading their flexibility. However, Global events have resulted in skyrocketing energy prices
these enablers are still nascent, currently lacking wide- and increasing energy poverty. The European response has
spread engagement and sufficient fertile ground to fully been a reinvigorated push for integrating renewable and
unlock their bottom-up flexibility potential. This article low-carbon resources into the energy system, with net-zero
discusses the challenges and potential solutions from con- energy independence becoming a priority across European
sumers actively contributing toward low-carbon energy governments. A key piece of the puzzle is the demand, spe-
cifically of residential and com-
mercial consumers. In most devel-
LEC oped countries, buildings account
for 30%–40% of the total energy
Operator Network consumption, stemming from
heating/cooling applications,
lighting, and traditional everyday
appliances. In the future, many
anticipate an increase in electri-
cal heating/cooling in individual
households and common district
SSB systems. The rapid growth of
EMS Forecasting Operator Network
electric vehicles will further add
to the high demand. Tradition-
ally, these developments would
Renewables Storage nZEB require massive reinforcements in
the electricity grid infrastructure
and lead to prohibitive electric-
Traditional Passive ity prices, unless a more intel-
Building ligent, consumer-centric way of
designing and operating build-
ings is employed.
A key aspect of the new sta-
Consumer tus quo will be the strong pres-
ence of demand-side flexibility.
By changing their energy pro-
files for some financial benefit,
consumers can be empowered to
figure 1. From passive buildings to local energy communities: overview of main actively support the energy grid
concepts. LEC: local energy community; SSB: smart sustainable building; nZEB: op erat ion. Exa mples i nclude
nearly zero energy building. matching their consumption to

54 IEEE power & energy magazine july/august 2023

 Even for poorly equipped buildings, the most cost-effective
solution was to utilize their thermal mass as heat storage
(store heat in the construction).

the variable renewable energy production and lower- customers, communities, and society at large. It is para-
ing their demand at times of high system stress. Both mount to encourage data sharing and collaboration among
electricity and thermal demand can be altered, e.g., by the involved parties as this will unlock new opportunities
delaying or shifting the charging of electric vehicles or to provide more integrated demand response services effi-
the operation of devices like space heating/cooling or ciently and cost-effectively.
washing machines. For instance, the United Kingdom’s
National Grid Winter 2022 Demand Flexibility Service How Are Electricity Markets Supporting
asked consumers to reduce their aggregate demand at Bottom-Up Opportunities?
prespecified timeslots. After 10 hourly testing events,
more than 1 GW of demand turn-down was provided, at Where Do the Markets Stand Today?
£3,000/MWh. The reader must have pondered if there is any framework
in place to entice more bottom-up support. Up to now,
What Could We Be Doing? electricity markets have been mainly organized at the
How much flexibility could buildings really provide? wholesale level, dominated by central (large) generation
While this depends on the type of building, early indica- units. While this design was a perfect fit for fossil-fuel-
tions show heating loads as major contributors. A 2012 dominated systems, it is now considered largely outdated
Danish study on the potential of residential heat pumps for the transition to a low-carbon energy supply. Even
noted a 20% increased utilization of excess wind genera- today, no coordinated efforts have been made to formally
tion and reduced use of fuels utilizing thermal storage. integrate the flexibility made available from smaller,
Even for poorly equipped buildings, the most cost-effec- decentralized units, like renewable resources, battery
tive solution was to utilize their thermal mass as heat storage, and demand-side flexibility. But what can be
storage (store heat in the construction). This solution done to nurture these bottom-up opportunities for grid
allows for postponing or extending the heating/cooling integration and flexible support? Let us discuss the cur-
without affecting the occupants’ thermal comfort. Many rent market and do a deep dive into the current (under-
buildings may also contain some type of thermal stor- used) opportunities.
age (e.g., domestic hot water tanks), which can use excess Two types of electricity markets exist: energy and
heat for space heating or for white goods, which in turn ancillary services. In energy markets, electricity is traded
decreases electricity needs. Similar approaches could be on different timescales (months ahead up to intraday);
used with district heating or cooling, where the thermal this typically translates into agreements or auctions to
mass of buildings could be utilized similarly to buildings generate and consume certain amounts of energy at given
with heat pumps. timeslots. In ancillary services markets, a variety of sup-
Despite the positive outcomes of such trials, large-scale port products helps system operators maintain the power
nonindustrial demonstrations of demand-side flexibility grid stability. These services include reactive power to
have been limited. Efforts have mainly focused on uncoor- maintain acceptable voltage levels and frequency support
dinated calls for load reduction rather than on optimizing to maintain the grid frequency at its nominal value or to
the aggregated building-level flexibility with respect to the restore balance after some failure (line trip, bad forecast-
energy system. Most buildings are equipped with simple ing, etc.). Most services value ramping up or down power
energy meters without communication-enabled sensors and production/consumption (from seconds to 15-min periods)
smart devices, hindering the efficient exploitation of demand and, especially, maintaining this response for a sufficient
response. While these are available in the market, consumer duration. Traditionally, it has been large (fossil-fuel or
habits and conventional solutions in the residential sector are nuclear) power plants trading across both types of mar-
still dominant. The lack of system integration and synergies kets. However, a low-carbon system with a heavy emphasis
(sharing of devices and data) leads to technical redundancy, on decentralized smaller units increases the risk of insuf-
higher overall cost, and loss of customer value—a major ficient cross-market liquidity. On the other hand, this situ-
barrier to implementing large-scale demand-side flexibility. ation also provides opportunities for new players to enter
Harnessing the increasing amounts of data is also a crucial these markets and contribute to their growth. Examples
impetus for fostering value in these new opportunities for include the following:

july/august 2023 IEEE power & energy magazine 55

 ✔ Virtual power plants bring together smaller genera- ible electricity consumption. Including the demand
tion units (e.g., wind or solar, potentially supported by side in the equation offers an entirely new perspec-
batteries and smart loads), the collective entity being tive on how consumers could support power system
treated as a single unit in the market. Thanks to the management. The evolution of smart grids will al-
progress in digitization and communication, virtual low tapping into demand response across all volt-
power plants can be highly dispersed and need not be age levels, down to residential customers, small
localized in a single area. companies, and all manners of buildings in gen-
• Distributed energy resources (connected to the dis- eral; see Figure 2.
tribution grid) can be aggregated at the power level
(from kilowatts to megawatts) to provide ancillary How Could Markets Adapt to Accommodate
services and at the energy level (from kilowatt More Demand Response?
hours to megawatt hours) to trade on energy mar- Once again, demand-side flexibility pops up as a crucial
kets. Across Europe, system operators are lower- aspect of the future energy system. The ability of smarter
ing the various thresholds for market participation, and more sustainable buildings to shift their electricity pro-
such that a handful of medium-sized distribution- file without impacting end-user comfort should be extended
connected resources can already participate com- to full market participation. For more than a decade, it
petitively in wholesale markets. This push for lev- has been clear that residential appliances can in fact pro-
eling the playing field is often driven by emerging vide flexibility services. A 2015 Belgian study measured
players like aggregators or prospective flexibility the flexibility potential of more than 400 residential appli-
service providers. ances over a three-year period. Wet appliances alone could
✔ Demand-side response has enormous potential provide a 2-GW power increase (or a 300-MW decrease),
to contribute to maintaining grid balance or tem- sustainable for more than 30 min, for the whole of Belgium
pering electricity prices. As discussed, instead of [peak demand is between 8 GW (summer) and 15 GW (win-
being discarded, the excess renewable electricity ter)]. This outcome was made without accounting for the
generation could be consumed by increasing flex- flexibility potential of electric vehicles, which have since
DANIEL CHAPMAN

figure 2. The Pinsent Masons building in London provides demand response services.

56 IEEE power & energy magazine july/august 2023

increased manifold. Indeed, the further decarbonization of Coming Together Is the Beginning: The
the built environment and the electrification of end demand Story of the gENESiS Project
will multiply this potential. Additionally, the ongoing evo-
lutions in information and communication technology will Defining the SSB
unlock this potential at lower costs, from individual SSBs Buildings and end users are clearly at the core of the energy
to sophisticated energy communities. Smart control algo- transition. It is thus no secret that most research efforts and
rithms will maintain the integrity of end-user comfort, for industrial developments are focused on the evolution of build-
instance by monitoring indoor temperatures or by charging ings into more sustainable and flexible entities and their opti-
electric vehicles before use. mal integration into electricity systems. In response to the
SSBs have already started contributing to emerging dis- growing need for a more holistic, sustainability-driven mind-
tribution-level flexibility markets by providing services like set, we should no longer approach buildings with a narrow
congestion mitigation. For instance, some distribution sys- perspective of “what can the building do for me?” Whole-
tem operators in the United Kingdom are procuring flexibil- system sustainability is a fundamental building block in the
ity services from residential consumers at the low-voltage pursuit of climate change mitigation. The European objec-
level, where enduring profile alteration or demand reduction tive has shifted to unearthing new ways for buildings and
is sought through smart or energy-efficient solutions. These end users to contribute to the energy transition, as we move
services are far cheaper than reinforcing distribution grids toward the net-zero system in an efficient and cost-effective
in paving the way for the energy transition. Furthermore, manner. To get a clear indication of the previous claims, the
they serve as tangible proof that the building sector can reader needs only to go through the recent European initia-
actively serve the grid’s needs and leave behind something tive concerning new buildings, which stipulates that from
of lasting value. The reader should be made fully aware of 2020 onward they must all be nearly zero energy (nZE).
the implications: this is not some far-fetched future sce- Inspired by the previous initiative, a 2019 international
nario. These changes are steadily developing, and as long research project (a collaboration among Luxembourg, Bel-
as they maintain traction, their positive impact will grow gium, and Denmark) sought to capitalize on the recently
wider by the day. expedited shift toward buildings. Based on the concepts of the
With the rapid changes in the building sector, and some nearly zero energy building (nZEB) and the smart building
field-trial experience, it seems everything is in place, and it (SB), the project proposed the SSB archetype (see Figure 3).
is time to establish local flexibility markets that incentivize Its salient features can be described as follows:
and enable consumers to participate in the energy transition ✔ A building is an nZEB if, over a year, its renewable
toward a more renewable supply. energy production nearly matches its consumption.

ROMÂNIA EFICIENTĂ, BALKANGREENENERGYNEWS.COM

figure 3. Elie Radu is an nZE, smart, and sustainable school in Romania.

july/august 2023 IEEE power & energy magazine 57

 ✔ Building design: Prioritizing investment profitability
table 1. Conventional Danish building versus SB
performance over a 10-day period. by deciding on the optimal size and type of assets
while meeting environmental and operational con-
Energy Consumption Operational
Case (kWh) Expenses Bill (€)
straints. At this stage, factoring in future EMS actions
and the potential flexibility interactions is desirable
Conventional 209.3 40.5 but often difficult to model with sufficient accuracy.
(winter)
✔ Energy planning and management: Designing an ef-
Smart (winter) 164.6 26.6 ficient EMS that offers customers free reign over the
Conventional –156.3 –22.4 benefit they wish to maximize. This benefit could
(summer) range from economic (electricity bill minimization) to
Smart (summer) –236.8 –41.7 tradeoffs between monetary and environmental goals.
✔ Grid integration and provision of flexibility ser-
vices: The paradigm shift from passive buildings to
✔ A building is smart if equipped with an EMS. Following active SSBs revolves around the optimal integration
a customer-defined objective, it optimally manages the of buildings in smart grids, i.e., examining and ex-
building’s assets (storage, load, generation, etc.) without ploiting their win–win interaction modes. Sustainable
compromising indoor comfort. Note that, while an EMS consumers are decisively empowered to enter electric-
is a prerequisite for smartness, gauging the actual level ity markets through various products, such as shifting
of sophistication is a different discussion. their consumption or arbitrating between production
✔ A building is sustainable if, on top of being an nZEB, and consumption through battery storage.
its material stock (construction and electric-thermal as- With customers unlocking previously unknown revenue
sets) has an overall low environmental impact based on streams and grid operators being able to defer costly grid rein-
its lifecycle assessment. This distinction is important: an forcement and release additional capacity headroom, the result
nZEB is not necessarily sustainable if its environmental is a clear win–win situation. The inclusivity of this empow-
footprint (from construction to demolition) exceeds its erment is its strongest asset: social benefits can be achieved
nZE benefits. Sustainability is fundamentally tied to the both by opportunistic profit pursuit as well as by customers
initial design and continued operation phases. with genuine environmental concerns, ready to sacrifice some
monetary gains in favor of a more sustainable goal. Some pre-
The Prospects of SSBs liminary evidence is presented hereafter.
SSBs and their integration into smart grids are of major The validity of our hypothesis was tested on real resi-
value in building a more sustainable society. To provide dential buildings in Denmark (Table 1) and in Luxembourg
the desired benefits, an SSB must be carefully designed, (Figure 4 and Table 2). The building construction is different
relying on advanced optimization models and centered per country, but the main asset composition was the same:
on customer benefits and bottom-up empowerment across solar panel, electric vehicle, energy storage, heating, ven-
three phases: tilation, and air-conditioning (HVAC), water heater, wash-
ing machine, and tumble dryer.
For the specific experiments, the
900 6,000 buildings were equipped (at no
800
cost) with an EMS that indepen-
5,000 dently scheduled and controlled
Cumulative Costs (€)

700
the operation of the preced-
Net Energy (kWh)

600 4,000
ing devices. The buildings were
500
3,000 directly exposed to wholesale
400 energy prices, with the electricity
300 2,000 bought and sold at market price,
200 rather than at retail or a with fixed
1,000
100 feed-in tariff. End users could
0 0 override the default settings and
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. program their own preferences
SB Costs (€) SSB Net Energy (kWh)
into the optimization, such as
SSB Costs (€) nZE Target Development (kWh) when the car charging should be
SB Net Energy (kWh) completed or during what time the
washing machine should be oper-
figure 4. SB versus SSB in a year with low solar production (buildings in Luxem- ating. The Danish buildings were
bourgian). examined in two similar 10-day

58 IEEE power & energy magazine july/august 2023

 The Danish buildings were examined in two similar 10-day
periods over summer months and winter months, both with
and without the EMS controlling the assets.

periods over summer months and winter months, both with set at reasonable levels, the SSB exhibits practically identi-
and without the EMS controlling the assets. On average, the cal behavior regardless of the value of f (see the following
SBs achieved a 45-kWh energy reduction during the winter paragraph). What is crucial to mention is that even though
(a 40% cost savings) and managed to export an additional flexibility provision increases the yearly net consumption,
70 kWh during the summer (90% additional benefits from imposing strict environmental constraints (e.g., nZE man-
selling power into the grid). The Luxembourgian buildings date and daily energy neutrality) can help in containing the
were examined during a year when the local solar produc- resulting increase. Simply put, environmental goals can still
tion was much lower than expected. We compared SBs that be met assuming the flexibility requests are reasonable in
did exclusively cost minimization with SSBs that simulta- terms of size.
neously kept track of their environmental profile. The SBs The SSB concept proved unique in targeting the funda-
did close the year with lower electricity costs (about 60 €), mental agents of the green energy transition: making the
but the SSBs had a much lower net consumption (about building desirable for consumers, grid operators, and the
1,400–1,500 kWh). Under a carefully calibrated manage- environment. However, the marriage between these agents
ment strategy, the second type of building had a massively was not always organic; it requires a variety of mathemati-
positive environmental impact at only 4 extra cents per saved cally rigorous methodologies in support. Everyone will
kilowatt hour (this cost could be kept low due to the direct naturally prioritize their own objective, some focusing on
wholesale market access). designing green buildings and monitoring environmental
Table 2 presents the yearly flexibility provision of SSBs impact, and others being more concerned with participating
governed by different flexibility remuneration schemes and in local flexibility markets. Naturally, there is no end to the
extra cost tolerances. Undoubtedly, the most important prospective complexity and diversity. For example, highly
observation was that buildings can support grid operation sophisticated customers may want to track the national
at no additional cost even when flexibility is treated as a low-carbon energy production and appropriately steer their
free service. Naturally, when flexibility remuneration is building profile or try to gain more independence from the
competitive to wholesale market prices, the system opera- grid. While accommodating everyone’s aspirations will be
tor’s collection of year-round requests is met at an excess of challenging, the win–win effect is inevitable. If anything,
90%. Though the customer’s willingness to sacrifice some the Luxembourg-based project demonstrated that a collabor-
profits to support the grid is an important parameter to con- ative approach, where the requirements of individual agents
sider, the primary driver is clearly the financial value of are sufficiently met, is a viable proposition. Coming together
flexibility provision—when the minimum financial value is requires no more proof, simply action.

table 2. Yearly flexibility requests and delivery for

the different scenarios examined.
Flexibility
Flexibility Provision
Scenario Request (kWh) (kWh)

FP = 0 €/kWh, f = 0% 246 168 (68%)

FP = 0.15 €/kWh, f = 0% 273 263 (96%)

FP = 0 €/kWh, f = 15% 390 313 (80%)

NATURALFLOW, METROPOLIS.ORG

FP = 0.15 €/kWh, f = 15% 257 257 (99%)

FP = 0 €/kWh, f = 25% 323 297 (92%)

FP = 0.15 €/kWh, f = 25% 277 270 (97%)

FP: reimbursement offered for flexibility provision; f: maximum

extra cost to maintain nZE status.
figure 5. An LEC in the continental United States.

july/august 2023 IEEE power & energy magazine 59

 Staying Together Is Progress: Creating grid independence, and provide easy, cost-effective, and fair
Smart Sustainable Energy Communities access to local renewable energy, especially to energy-poor
and vulnerable customers. Furthermore, by enabling end
Defining Local Energy Communities users to assume various roles, LECs can give birth to inno-
No matter how sophisticated an individual consumer or vative solutions and new business models and opportunities.
building is, the lone path is rarely efficient. A single unit
rarely has a big enough piece of the pie to instigate change. LECs in Service of People,
However, the story is quite different when you band together; Sustainability, and the Grid
this is where collective energy initiatives come into play. The simplest way for an LEC to enjoy economic benefits is
From energy cooperatives to ecovillages and large-scale to export its locally produced renewable energy surplus to
communities—aggregated energy entities are currently pop- the local grid. Its members can further agree to steer their
ping up all over Europe. Built with the fundamental objective collective behavior toward maximizing their self-sufficiency
of serving the participants’ collective welfare, LECs strike a and/or self-consumption, further boosting grid indepen-
balance between being innovatively disrupting, socially ben- dence and shielding them from events like price spikes. This
eficial, and reasonably complex. They are viewed as a highly local optimization is also beneficial for distribution grids as
promising option to achieve collective energy representation it leads to reduced network losses and increased efficiency.
in a sustainable way. Cases exist where an LEC has led to the reduction or even
The legislation put forth in the European Clean Energy full deferral of network reinforcement. LECs may also pro-
Package formally acknowledged the term energy commu- vide a variety of services to grid operators, such as demand
nity, defining the legislative framework for “citizen-energy response of aggregated energy patterns or provisional energy
communities” and “renewable energy communities.” storage through an aggregator.
Broadly, an LEC (see Figure 5) is a legal entity with open The SSB-focused project also examined the optimal
and voluntary participation to organize its members’ col- management of diverse LECs (with different types of end
lective energy actions to provide economic, environmental, users) to simultaneously achieve economic objectives and
or social benefits. The LEC members can engage in various support the local distribution grid. The examined LEC was
activities, including generation, distribution, supply, storage, unique in that every agent involved played a distinct role
consumption, aggregation, sharing, and energy-services pro- in forming its operation—from the LEC’s shared energy
vision. Customer empowerment and social innovations are at storage down to the individual electric vehicle or wash-
the heart of the LEC concept. End users with co-ownership ing machine. First, each customer optimized its behavior,
of renewable energy resources become responsible for their and then the shared battery asset further coordinated the
collective energy actions, thus assuming an active role in the collective profile to maximize self-sufficiency or self-
energy transition. LECs can promote the implementation of consumption. The community battery could also provide
local energy projects that would be challenging for single extensive support to the grid, either in the form of direct
individuals to launch, facilitate increased autonomy and energy requests or by the grid operator reserving part of the

25
1 0.2
(a) (a) 0.5
20 0.15
Electricity Cost (euro/kWh)

0 0.1
0 100 200 300 400 500 600 700 0 100 200 300 400 500 600
Temperature (°C)

25
2 0.2
(b) (b)
20 0.15
0 0.1
0 100 200 300 400 500 600 700 0 100 200 300 400 500 600
5
23 0.2
(c) 22 (c)
0.15
21
0 0.1
0 100 200 300 400 500 600 700 0 100 200 300 400 500 600
Time (15 min) Time (15 min)

figure 6. Indoor air temperature and HVAC power consumption over a week for: (a) residential building, (b) office
building, and (c) health-care facility.

60 IEEE power & energy magazine july/august 2023

battery capacity to be on standby. Preliminary results were users need to know is that the temperature is consistently
positive, with the proposed control structure proving com- within acceptable levels. With respect to how the electricity
putationally efficient, less prone to cyberattacks and data price affects the internal temperature profile, each HVAC
leaks, and financially beneficial for all participants. Aside system reserves its intense operation for low-price periods.
from the LEC reaching self-sufficiency levels of more than Naturally, the consumption pattern also implicitly reflects
97% (during summer), individual buildings could indi- the occupancy and thermal needs per building type: residen-
rectly receive up to €3 within a 2-h period due to the com- tial buildings demonstrate a repeating up-and-down pattern
munal battery providing flexibility services (the number in (people going to and returning from work), office buildings
the U.K. trials was close to £2.8). operate at high demand during the work week and shut down
It is also worth observing whether the aforementioned during the weekend, and health-care facilities maintain a
financial benefits lead to any negative consequences in cost-optimal yet consistently active operation.
terms of comfort for the LEC members. Figure 6 presents At the same time, these setups are still under trial, and it is
the weekly indoor air temperature evolution, accompanied important to remain vigilant of still necessary improvements.
by the power consumption levels of HVAC devices (man- Despite the immoderate advantages, there is still vagueness
aging the internal temperature), for the three examined surrounding the specific legal standing of LECs. Because of
building types: residential, office, and health-care facil- this situation, member states can make unilateral decisions,
ity. As expected, the EMS of each building maintains the which may hinder the harmonic development of a common
desired comfort range with no issue and does so optimally framework. The necessary level of technical sophistication is
to maximize monetary returns. The temperature dynamics no secret; significant investment in information and commu-
are clearly different between the different building types, nications technology (ICT) infrastructure is required to opti-
but this is simply an academic observation; all that the end mally set up LECs. Finally, the interests of LECs and system

Stage 1: MPC-Based Optimization of SSB Setpoints

Solves MP-OPF Forecasting Tools

Issues foreseen? (NLP)
Profiles

Source of Uncertainty
LV System
Operator
Network Data

LV Network
Implementation

Transmission of Setpoints

Final Response
Internal
Uncertainty
Noncompliant SSBs

Missing
Service
Readjustment
of Compliant SSBs
SSB MPC SSB MPC SSB MPC
Stage 2: MPC-Based Optimization
of SSB Internal Operation (QPs) Stage 3: Automatic Readjustment (QPs)

figure 7. Bringing it all together: a collaborative approach to build smart sustainable power grids. MPC: model predictive
control; MP-OPF: multiperiod optimal power flow; NLP: nonlinear programming; LV: low voltage; QP: quadratic program.

july/august 2023 IEEE power & energy magazine 61

 operators can lie at vastly opposing ends, which can lead Extracting Industrial Value for the
to the activation of conflicting services and lead to further Smart Sustainable Power Grid
grid stress and a collective loss of social welfare. Regulatory Going from theory to practice always requires stretching
frameworks enforcing suitable tradeoffs are yet to be found. our assumptions and pushing closer to realism. Is there
really much value to extract as we challenge ourselves with
Working Together Is a Success: Toward increasingly tight margins? The proposed approach chal-
the Smart Sustainable Power Grid lenged itself across six axes, noting the following:
✔ Granularity: Moving closer to real-time network man-
Defining a Rigid Customer–Grid agement was possible, even when pushing the limits of
Collaboration Framework practicality. One could go down to 15-min time steps, ac-
This article has focused on supporting end users and fostering companied by long optimization horizons, up to 24 h long.
bottom-up developments. Still, one should not discount the ✔ Scalability: The complexity of similar (academic) ap-
merits of top-down approaches, i.e., grid operators dictating proaches usually precludes scaling up. In this case,
development according to network needs. It is true that bottom- targeted approximations reduced solution times by up
up approaches lead to customizable, nonintrusive approaches to 95% without compromising the quality of the re-
that allow for significant leeway in designing one’s strategy for sults beyond an accuracy deterioration of 1.4%.
interacting with the grid. This approach is a great way to stimu- ✔ Data availability: Limiting the amount of available
late interest and large-scale investment in sustainable develop- information to a minimum would theoretically pre-
ment. However, removing all restrictions from end users would clude any meaningful result. However, the use of only
likely result in an unpredictable setting for grid operators with basic network models and black box building models
little room for collaboration, which is not sustainable in the long did not hinder the effectiveness of the collaborative
term. Now, giving the same freedom to grid operators is also approach, demonstrating its viability even under the
unreasonable, but there are positive elements to be adopted. The usual real-life challenges that we would normally face.
high degrees of network optimality and compliance, alongside ✔ Communication: Communication often breaks down,
the superior observability, monitoring, and control, are not pros- and information will not always be perfectly exchanged
pects to be easily discarded. In the end, the idea is to merge the among parties. Still, a collaborative approach with high
positive aspects of the two viewpoints, contain any fallout from levels of participation and coordination proved resilient
their caveats, and ultimately devise a collaborative approach, against communication failures. Even under extreme
depicted conceptually in Figure 7, for optimal network manage- scenarios, the overall objective was admirably served,
ment and increased social welfare. its deterioration not crossing the 1% threshold. This out-
Such an approach was shown to be viable. Starting with come was evidence of true industrial relevance.
some more academic assumptions (e.g., a knowledge of net- ✔ Customer diversity: Collaborative approaches should be
work topology and building composition) and evolving into inclusive and functioning with every type of end user since
a more industry-friendly version, the project demonstrated uniform customer compositions are rare. This inclusive-
that serving the objectives of all parties is feasible. The pro- ness was a fundamental prerequisite that resulted in an ap-
posed first-of-its-kind three-stage design borrowed elements proach that was readily applicable to any building setting.
from all viewpoints: top-down network optimization and ✔ Exploiting overabundant flexibility: Very rarely do
the creation of unique requests, partially voluntary bottom- we observe instances of too much flexibility being
up optimization from individual customers, and an ad hoc available; discarding residual capabilities would be a
local flexibility market for whenever the voluntary support clear loss of opportunity. Tapping into the prospective
fell short. This approach produced very positive results, even financial and grid benefits was first proposed in this
with significant leeway for end users and limited communi- collaborative approach: after meeting local require-
cation. When compared to utopian, purely bottom-up or top- ments, we expand these services to the upstream sys-
down alternatives, the collaborative approach resulted in no tem and higher voltage levels. Besides the additional
more than a 14% reduction in the recorded benefits for either revenues for consumers, the contribution to whole-
party—a small inconvenience indeed for setting up a viable system security results in a drastic drop in market
framework for smart collaboration. and network costs. Grid operators can engage with

62 IEEE power & energy magazine july/august 2023

 previously inaccessible flexibility and ultimately fo- agreeing on some basic common goals is the first action.
cus on higher level objectives, like sophisticated coor- Technological developments in smart sensors and meters are
dination with the national power system. vital as these new sources of information will enable optimal
energy management. On the other hand, stimulating con-
In Summary sumers is not only a matter of technical and financial ben-
While the overarching topic of this article is fostering the bot- efits; it requires a multidisciplinary approach, including the
tom-up empowerment of end users and buildings, we covered involvement of experts from social sciences to understand
many different topics with the following key messages: what people may best react to, depending on social, eco-
✔ Buildings today and prospects: Buildings are a signifi- nomic, and geographical context. From planning to imple-
cant contributor to global energy demand, making them mentation, success starts and ends with a common strategy
an excellent candidate to undergo sustainable transfor- and by being proactive rather than reactive. In the words of
mation. They can passively achieve high energy effi- Albert Einstein: “A clever person solves a problem. A wise
ciency and customer benefits and ideally support grid person avoids it.”
operators with flexibility services. Though not wide-
spread, these opportunities paint a hopeful picture. Acknowledgment
✔ Market support for buildings: Despite the vast untapped The authors acknowledge the funding from FNR Luxem-
potential, the few available local market structures are bourg in the frame of the research project gENESiS.
nascent and not broadly inclusive (with high barriers
to entry, complex participation requirements, etc.). For Further Reading
The added whole-system value is massive, as seen I.-I. Avramidis et al., “gENESiS: Design, operation and
in several large-scale applications. Most tangible at- integration of smart sustainable buildings in smart power
tempts to incorporate demand response have been grids,” in Proc. 29th Mediterranean Conf. Contr. Au-
crowned with success, paving the way for establishing tomat., Puglia, Italy, Jun. 2021, pp. 45–52, doi: 10.1109/
proper frameworks at the global level. MED51440.2021.9480315.
✔ The SSB: The SSB is the meeting point between long- G. Deconinck and K. Thoelen, “Lessons from 10 years
term environmental friendliness, smartness in service of demand response research: Smart energy for customers?”
of unearthing customer benefits, and ability to support IEEE Syst., Man, Cybern. Mag., vol. 5, no. 3, pp. 21–30, Jul.
the grid’s operation with flexibility. Recent research ef- 2019, doi: 10.1109/MSMC.2019.2920160.
forts have identified significant added value for society M. Liu et al., “Grid and market services from the edge:
through this brand-new resource with high potential. Using operating envelopes to unlock network-aware bottom-
✔ The smart sustainable community: Collective energy up flexibility,” IEEE Power Energy Mag., vol. 19, no. 4, pp.
representation can eliminate some techno-economic 52–62, Jul./Aug. 2021, doi: 10.1109/MPE.2021.3072819.
barriers that individual consumers would face by them- “Nearly zero-energy buildings,” European Commis-
selves. It makes achieving sustainability and economic sion, Brussels, Belgium, 2021. [Online]. Available: Energy.
goals easier and significantly expands the range of ec.europa.eu/topics/energy-efficiency/energy-efficient
flexible options that can be offered to support the grid, -buildings/nearly-zero-energy-buildings_en
thus unlocking new revenue streams. A. Caramizaru and A. Uihlein, Energy Communities:
✔ The smart sustainable power grid: Neither end users An Overview of Energy and Social Innovation, vol. 30083.
nor grid operators can pursue their objectives inde- Luxembourg City, Luxembourg: Publications Office of the
pendently, mandating some form of collaboration. By European Union, 2020.
reconciling bottom-up and top-down viewpoints, one
can satisfy multiple objectives, even in the presence Biographies
of practical restrictions like ICT failures or customer Iason-Iraklis Avramidis is with Oaktree Power, W1J 6ER
diversity. Positive effects are not limited to the local London, U.K.
level and can have far-ranging implications, reducing Florin Capitanescu is with the Luxembourg Institute of Sci-
network costs through the provision of multilevel flex- ence and Technology, Esch-sur-Alzette L-4362, Luxembourg.
ibility services and seeding the ground for new elec- Geert Deconinck is with KU Leuven, B-3001 Leuven, Belgium.
tricity markets. Himanshu Nagpal is with Eurac Research, Bolzano
Significant potential exists for SSB applications. Their I-39100, Italy.
development fulfills the energy requirements of cost-effec- Per Heiselberg is with Aalborg University, D-9220 Aal-
tiveness and sustainability. The concept is bound to domi- borg, Denmark.
nate future developments as we move closer to the low- André Madureira is with the Luxembourg Institute of Sci-
carbon 2050 vision. However, it is key to avoid one-sided ence and Technology, Esch-sur-Alzette, L-4362, Luxembourg.
developments and establish a fair and transparent collabora-
p&e
tion framework. The best way to do so remains open, but

july/august 2023 IEEE power & energy magazine 63

 The Challenge
of Integrating
Demand
Response

C
CAPACITY REMUNERATION MECHANISMS (CRMS) demand-side response has been upon the
have become a pillar of the design of decarbonizing electric- revenues coming from the capacity mar-
ity markets. By complementing the economic signals con- ket of this power system. DR participa-
veyed by the energy market, they aim at enhancing resource tion in European CRMs is also growing,
adequacy, particularly in the current context in which power but it accounts for only 3% of the demand
systems transition toward low-carbon technologies. CRMs for firm capacity in the region.
are also being mentioned as a key piece to prevent, in the Integrating demand resources in CRMs
future, scenarios such as the energy crisis that started in is beneficial for the system since it reduces
2021 in the European Union. overall costs and promotes resources whose
Although CRMs have been frequently criticized and contributions in terms of flexibility will be much needed in
identified as a tool for subsidizing conventional genera- future power systems. However, this participation adds a layer
tion driven by fossil fuels, they have shown their potential of complexity to the design of capacity mechanisms. Two key
in fostering new technologies and business models. Inter- elements in the design of the CRM are particularly relevant
national experiences have shown how demand response when it comes to integrating DR: 1) the way the demand to be
(DR) can compete with generation technologies and play covered by the capacity mechanism is defined by the regula-
a relevant role in capacity mechanisms. For instance, tor and 2) the methodology to allocate the costs of the CRM
demand resources covered 10% of the capacity market in among consumers who benefit from that coverage. There is
the Pennsylvania, New Jersey, and Maryland power system currently a gap in the academic literature on resource ade-
(PJM), one of the largest interconnections in the United quacy and CRMs, which has often missed delving into these
States, in recent years. Figure 1 shows how dependent two aspects.

By Pablo Rodilla, Paolo Mastropietro ,

and Paulo Brito-Pereira
Digital Object Identifier 10.1109/MPE.2023.3269551
Date of current version: 21 June 2023

64 IEEE power & energy magazine 1540-7977/23©2023IEEE july/august 2023

 ©SHUTTERSTOCK.COM/ROSSHELEN
Providing a Comprehensive Demand for Firm Supply
and Cost-Allocation Strategy
Theoretical Framework Most of the literature on demand partici-
pation in capacity mechanisms focuses on
how the demand can sell some sort of DR
service in the CRM as a capacity provider
and some associated features of this partici-
The goal of this article is to define a comprehensive frame- pation (baselining and derating of DR agents). However, the
work for the participation of demand resources in capacity potential role of DR conditions the process earlier on since
mechanisms, identifying all potential participation modes and it should be considered from the very start, i.e., when the
highlighting the inefficiencies that could arise from certain regulator or the system operator estimates the expected need
designs. The article first assesses the aforementioned two cen- for firm supply during the delivery period.
tral design elements of CRMs for the efficient participation of Firm supply, a concept that encompasses both firm
demand resources, i.e., the methodologies to set the demand capacity and firm energy, is the expected contribution
for firm supply and to allocate the costs of the CRM. Then, of a resource during scarcity conditions in the system. In
it defines a classification of all potential participation modes, capacity-constrained systems, such as power systems on the
listing the benefits and the potential inefficiencies of each of East Coast of the United States or in Europe, firm supply
them but also highlighting which are being used in real CRMs. is usually computed through a derating factor (or capacity
Finally, the article draws on regulatory recommendations. credit) to be applied to the installed capacity of the resource.

july/august 2023 IEEE power & energy magazine 65

 In most capacity markets, the demand for firm supply is (e.g., in the United Kingdom). This approach significantly
set administratively, without any active role from consum- constrains the kind of participation that can be expected by
demand resources, as analyzed in the next section.
ers. In centralized capacity markets, this exercise results in
a demand curve that is used in an auction, which tries to As already mentioned, another design element of CRMs
that affects demand participation is the methodology for the
reflect some degree of elasticity. This elasticity is defined
recovery of the costs of the mechanism. The latter arises
administratively, too. In decentralized capacity markets, the
demand for firm supply is computed for each load-serving from the signature of capacity contracts with reliability
entity through an administrative methodology. providers, selected either through a centralized auction or
The most efficient way for demand to participate would through bilateral contracts. It must be noted that, once these
be the involvement of end users in this initial phase, let- contracts are signed, their cost is a sunk cost. Therefore, a
ting consumers define their own demand for firm supply reduction of demand during scarcity conditions with respect
without administrative interventions; this demand for firm to the estimation made to set the demand for firm supply
supply would become the upper limit of their consumption does not reduce these costs, which must be paid even if the
during scarcity conditions in the system. Alternatively, theservice is not activated. This condition equates CRM costs
to other residual costs in the power sector, such as residual
regulator could estimate an initial requirement for each con-
sumer or consumer group and then allow them to increase or network costs or policy costs. According to economic the-
decrease such value. These approaches would also simplify ory, residual costs should be allocated, minimizing distor-
and improve the efficiency of the cost allocation since suchtions to the economically efficient signals defined to recover
other costs.
a self-declared demand for firm supply is the best cost driver
on which to apply CRM charges. This process would be In the case of capacity mechanisms, this least distortion
symmetric to the derating process for generation resources. could be achieved, in principle, through the application of
Each consumer (or consumer group/category) would pay a fixed charge per customer. This charge should reflect the
the costs of the capacity mechanism according to the con- contribution of each consumer to the demand for firm sup-
ply. If this information cannot be extracted from the process
sumer’s expected “negative” contribution to the reliability of
the system (since procuring 1 MW of firm capacity entails of setting this demand, then the charge could be proportional
contributing “negatively” for that amount). to the historical consumption of each consumer during scar-
Nevertheless, in most CRMs, the demand for firm sup- city conditions. A moving average over a certain number
ply is estimated in a very aggregated way. For instance, theof years or delivery periods could be applied to historical
demand curve in capacity auctions is defined through an consumptions. Other cost-allocation methodologies are pos-
estimation of the whole-system demand and its evolution in sible, such as the application of capacity charges on with-
drawals made during actual scarcity conditions. As already
the future, potentially applying a least-worst regret approach
mentioned, these withdrawals are
not the real cost driver (reducing
demand in real time would not
900
reduce the CRM costs once they
Regulation
800 Synchronized Reserve
have been incurred). However,
Energy Economic such a cost-allocation methodol-
700 Energy Emergency ogy may foster efficient behav-
Capacity ior from consumers that could
600 reduce future needs for further
firm capacity, although it would
Millions (US$)

500 also result in the under-recovery

of CRM costs.
400 International practices, how-
ever, favor simple volumetric
300
charges applied over a very large
200
number of hours. For instance,
Ireland applies a CRM charge
100 to electricity suppliers accord-
ing to the demand they serve dur-
0 ing day hours (from 7:00 a.m. to
11:00 p.m.) during the entire year.
08

09

10

11

12

13

14

15

16

17

18

19

20

21
20

20

20

20

20

20

20

20

20

20

20

20

20

20

Italy recovers 70% of CRM costs

figure 1. The evolution of demand resources income in PJM; chart from Monitoring through charges applied to energy
Analytics’ State of the Market Report. withdrawals during the 500 “peak

66 IEEE power & energy magazine july/august 2023

hours,” defined as those hours in which the system is more already been deployed, this approach could encompass the
likely to suffer a stress event; the remaining part of CRM entire demand, including residential or regulated demand.
costs is recovered through a much lower charge applied dur- In a few countries (e.g., Spain), consumers are already asked
ing the rest of the hours of the year. These cost-allocation to specify different contracted capacities, e.g., for peak or
strategies are equivalent to socializing the sunk CRM valley hours, which are subject to different charges. Wid-
costs without providing any efficient signal to consumers ening this approach to include resource adequacy would
but without guaranteeing cost recovery either. This approach only require asking consumers to specify an additional con-
affects the different modes of demand participation, as ana- tracted capacity that would be used to limit consumption
lyzed in the next section. during scarcity conditions (or to impose sanctions on the
withdrawals exceeding it).
Different Modes of Demand This theoretical approach would move the responsibility
Participation in CRMs of defining the demand for firm supply fully onto consum-
After defining the necessary background on the method- ers’ shoulders. Although technically feasible, this shift may
ologies for estimating the demand for firm supply and the be challenging from a regulatory and political point of view.
strategies for CRM cost allocation, it is possible to classify However, there are other approaches that mimic this first
the participation for demand resources in capacity mar- alternative and partially achieve its benefits. For instance,
kets into different participation modes. Using the standard the regulator or the system operator could estimate an aggre-
terminology of DR, two broad categories are identified gated demand for firm supply but compute a disaggregated
as follows: estimation for certain consumer categories (e.g., large com-
✔ Explicit participation: Consumers explicitly take part mercial or industrial end users). The latter would then be
in some phase of the capacity market and assume bind- given the chance of opting out, i.e., of reducing or directly
ing commitments. They can do that 1) in the demand setting to zero the demand for firm supply assigned to them.
side of the capacity market, by defining their demand The opt-out would generate a commitment that allows the
for firm supply or 2) in the supply side, by selling DR system operator to limit withdrawals during scarcity condi-
services that are equated to the reliability services tions, but it would also exempt the consumer from paying
offered by generators. This participation mode is ad- CRM charges for the opted-out capacity. This approach is
dressed in the “Implicit Participation” section. represented graphically in Figure 2 for a centralized capac-
✔ Implicit participation: Consumers do not explicitly ity auction whose demand and supply curves and the cor-
participate in the capacity market, and they do not as- responding market clearing are depicted in a price-quantity
sume any binding commitment to reduce their load. chart. The same reasoning could be applied, however, to
However, they react to CRM charges during its opera- decentralized capacity markets in which the obligation for
tion, modifying their demand to reduce their contribu- each load-serving entity could be reduced through an opt-
tion to the coverage of CRM costs (and, if charges are out of some of its end users.
designed properly, their contribution to scarcity con- A similar approach would consist of estimating the
ditions). This participation mode is addressed in the demand for firm supply only for certain consumer catego-
“Implicit Participation” section. ries (e.g., residential or regulated demand). The rest of the
consumers would be required to define their own demand
Explicit Participation through an explicit opt-in in the capacity market, which
would generate the same commitments that have already
Demand Side (Opt-In or Opt-Out) been mentioned previously. This opted-in capacity could be
Although very infrequently used in practice, the most obvi- used to simply shift the demand curve [chart in Figure 3(b)],
ous way to involve consumers in capacity mechanisms would or these consumers could be asked to present price-quantity
be to conceive an active role for them in the calculation of demand bids, also specifying the value that they assign to
the demand for firm supply (according to some authors, PJM the firm supply [chart in Figure 3(c)].
may be moving in this direction). Ideally, consumers could It must be noted that these approaches would also sim-
be asked to define beforehand the capacity they expect to plify the allocation of CRM costs. The demand for firm sup-
need and withdraw from the power system during future ply is the real driver of these costs. Therefore, if some or all
scarcity conditions. The selection of this demand for firm consumers have a certain demand for firm supply earmarked
supply could be informed by some brief report from the sys- to them, either estimated by the regulator/system operator or
tem operator with estimations on the number of stress events self-defined by the end user, CRM charges could be easily
expected in the system and on the range of the charges to applied to this capacity during each delivery period.
which this capacity demand would be subject. This value
would limit actual withdrawals in real time during stress Supply Side (DR)
events since consumers would commit not to exceed that The disaggregation of the demand for firm supply is a
capacity demand. In power systems where smart meters have complex task that, as mentioned in the “Different Modes of

july/august 2023 IEEE power & energy magazine 67

 Demand Participation in CRMs” section, is hardly found traded in France. For instance, in Belgium, demand resources
in real CRMs. Especially in centralized capacity markets, are allowed to bid their own strike price, a key element for the
the demand is commonly defined for the entire system, and settlement of the reliability option.
no opt-in or opt-out is allowed. In this context, consumers
can still participate in the capacity market by offering DR Baselining
services. These services are offered through price-quantity Another element required to allow this kind of demand par-
supply bids that go into the supply curve of the market, as ticipation and the assessment of its performance is a meth-
shown in Figure 4. However, it must be highlighted that the odology to identify a demand baseline. The latter may be
consumers involved in such DR are represented twice in the used to define the firm supply of these demand resources
auction, both in the demand curve (since they are part of in conjunction with a derating factor. Derating of demand
the whole-system demand for firm supply) and in the supply resources usually depends on the self-declared or tested
curve. This feature is prone to arbitrages and other ineffi- duration of the service that the demand aggregator can pro-
ciencies, as analyzed next. vide. Usually, the lower the duration, the lower the expected
For consumers to offer DR services in the CRM, the reg- contribution to scarcity conditions and, consequently, the
ulator must design a reliability product that these resources
will be allowed to trade in the capacity market. In principle,
the reliability product should be the same for all the resources p
competing in this market segment and should reflect the ability
of each agent to contribute to the reliability target in force in
the power system. However, many regulators, both in Europe
and the United States, have defined specific reliability prod- Target
ucts that are tailored to the characteristics of demand resources Demand
and are meant to foster their participation. This is the case, (Regulated)
for instance, of the reliability-option CRMs introduced in Bel- pc
gium and Italy and of the decentralized capacity obligations

qc q
(a)
p p
Opt-In

Target Demand
(Whole System)
Target
Demand
(Regulated)
pc
pc

qc q
(a) qc q
(b)
p
Opt-Out p

Target Demand Opt-In

(Whole System)
Target
Demand
(Regulated)
pc pc

qc q
(b) qc q
(c)
figure 2. (a) and (b) The explicit participation of demand
resources in the demand side of the CRM through an opt- figure 3. (a)–(c) The explicit participation of demand
out (the demand curve mimics curves used in real CRMs, resources in the demand side of the CRM through an
which represent demand elasticity). opt-in.

68 IEEE power & energy magazine july/august 2023

derating assigned to the resource. The demand baseline is The Double-Remuneration
also essential to verify and quantify the compliance of these (or Double-Benefit) Problem
resources to their capacity commitments by comparing the The supply-side explicit participation of demand resources
actual withdrawal with the one that would have been regis- in CRMs has a significant disadvantage that stems from the
tered if the service had not been activated. presence of a certain group of consumers both in the demand
As for any other DR program, several baselining and in the supply curve of the capacity market. A demand
approaches are possible. Some recent studies, such as the
ones developed by Elia, the Belgian transmission system
operator, found that the most widely adopted methods for p
capacity mechanisms are historical and control-group Target
baselining. The former uses historical data to estimate the Demand
expected demand in the activation period by applying exclu- (Whole System)
sion rules and rankings. For instance, high-X-of-Y method-
ologies focus on the last Y days of the same kind of activa-
pc
tion day (e.g., working days) and, within this group, select
the X days with the higher load. For each settlement period,
the baseline is defined by averaging the load during these
X days. Historical baselines may also rely on some sort of qc q
same-day adjustment, i.e., a methodology that modifies the (a)
baseline according to the load registered during the day of p
activation (with expedients to avoid gaming from the demand
resource to overestimate its contribution). A typical example
Target Demand
of a historical baseline methodology with same-day adjust-
(Whole System)
ment used in the California Independent System Operator
(CAISO) is shown in Figure 5.
Control-group baselining does not rely on histori-
pc DR
cal data but estimates the load that the demand resource
would have withdrawn if it was not activated based on DR
DR
the withdrawals of a control group of consumers. These
qc q
consumers may be selected from among those who are
(b)
providing DR (randomized controlled trial over a small
number of active consumers), or they may be consumers figure 4. (a) and (b) The explicit participation of demand re-
with similar characteristics to those in the DR program sources in the supply side of the CRM through DR services.
but who do not provide DR ser-
vices. In particular, this type of
demand baselining is used in the
800
United States. Load Drop With Adjustment
Other baseline methodologies, 700
Electricity Demand (kW)

which are rarely used in the frame- 600

work of capacity mechanisms, are
500
Meter Before/Meter After, which
defines the baseline based simply 400
on the load registered before the Load Drop Without Adjustment
300
DR service is activated; declara-
DR Event
tive baselining (in which the base- 200
line is estimated directly by the 100 Morning-of
DR service provider, who com- Adjustment Window
municates it to the operator); and 0
1 a.m.
2 a.m.
3 a.m.
4 a.m.
5 a.m.
6 a.m.
7 a.m.
8 a.m.
9 a.m.
10 a.m.
11 a.m.

1 p.m.
2 p.m.
3 p.m.
4 p.m.
5 p.m.
6 p.m.
7 p.m.
8 p.m.
9 p.m.
10 p.m.
11 p.m.
Noon

Midnight

regression-based baselining (in

which the baseline is computed
through a complex formula with 3-in-10 Baseline
several parameters, such as tem- Adjusted 3-in-10 Baseline
perature and daylight, whose Actual Usage
coefficients are defined based on
historical data). figure 5. Historical baselining with morning-of adjustment used in CAISO.

july/august 2023 IEEE power & energy magazine 69

 resource taking part in the capacity mechanism is remu- is the contribution of each consumer to the demand for
nerated for reducing its load during scarcity conditions. firm supply, and a good proxy parameter to estimate this
However, by doing so, it can also reduce its contribution contribution is the historical load during scarcity condi-
to the recovery of CRM costs if the charges are designed tions, with a moving average. Using historical data with a
to allocate these costs to the withdrawals during scarcity moving window certainly dilutes but does not eliminate
conditions. This way, the demand resource is remunerated the signal for consumers to reduce their load. If data from
twice, and more importantly, its net position in the CRM the last five years are used, an end user who manages to
could be larger than zero, i.e., it could have a net revenue eliminate the load during all scarcity conditions regis-
from its participation. tered in the system would stop paying any CRM charge
However, what the demand resource is actually doing after five years. The signal could be further strengthened
is just reducing or setting to zero its load during scarcity if charges are applied on consumption during scarcity
conditions with the final goal of avoiding the payment of conditions in the delivery period, although this strategy
CRM charges (and without benefitting from the coverage may affect cost recovery.
of the mechanism). Therefore, its net position in the CRM In real CRMs, however, the implicit participation of
should be, at maximum, null. This point of view was clearly demand resources has always been almost nonexistent since,
stated by the Italian regulator ARERA during the design of in the majority of cases, CRM costs are recovered through
its capacity mechanism. According to its criteria, a demand volumetric charges applied over a large number of hours,
resource involved in a capacity market provides a service impeding an efficient reaction by the load. The United King-
that can be used only by itself (through the consumers by dom offers a paradigmatic example. Since the introduction
which it is formed, who are also represented in the demand of the capacity market, CRM costs were recovered through
curve). However, the service from a demand resource cannot a charge on electricity suppliers that was applied to the net
be provided to a third party, unlike the service provided by a demand (gross demand minus embedded generation) they
generator, whose position in the CRM is, of course, expected served from 4:00 p.m. to 7:00 p.m. in the working days from
to be larger than zero. November to February. This approach prompted suppli-
The risk of a double remuneration for demand resources ers to sign agreements with embedded generation (mainly
depends on the design of CRM charges. Paradoxically, diesel gensets) to produce in those hours, thus reducing
the double-remuneration problem has been avoided so far the net demand. This kind of DR was not efficient from an
thanks to the inefficient cost-allocation strategies adopted adequacy point of view since the load reduction was tak-
in most capacity mechanisms. Volumetric charges cover- ing place in hours where no scarcity was registered, and it
ing a very large number of hours reduce the benefit that can was having a harmful environmental impact. For this rea-
be achieved by demand resources reacting during scarcity son, the cost-allocation strategy was modified in 2018, and
conditions. However, cost-allocation strategies based on CRM charges are now applied to the gross demand of each
capacity charges during scarcity conditions could increase supplier to avoid this inefficient implicit participation of
the risk of double remuneration for demand resources. The demand resources. However, the inefficiency stemmed from
most efficient way to deal with this problem would be, once an inefficient cost-allocation strategy, which was only par-
again, to introduce fixed CRM charges (based, for instance, tially amended by the 2018 reform.
on historical consumption during scarcity conditions). With
this approach, the demand providing DR services would pay Conclusion and Regulatory
a fixed amount of CRM costs and would offset this quan- Recommendations
tity by the revenues it receives from the capacity market. Demand resources and the flexibility they may provide
If all the elements of the CRM are properly harmonized, to the power system are extremely valuable in achiev-
this combination should result in a net position close to zero, ing resource adequacy. Most capacity mechanisms in place
although deviations are possible. today allow the participation of demand resources, although
with different rules and different outcomes. While DR cov-
Implicit Participation ers a larger share of the demand for firm supply in some
Once the capacity market is cleared and commitments power systems in the United States, Europe is lagging
assigned, there is still some space for implicit demand par- behind, and DR accounts only for under 3% of capacity
ticipation. The potential for this kind of participation mode markets in the region.
clearly depends on the design of the charges introduced to This article presents a comprehensive theoretical frame-
recover the costs of the mechanism and on the signals they work for the participation of demand resources in capacity
convey. Demand resources can basically shift their load to mechanisms. Its first finding is that the efficient partici-
minimize payments derived from these charges, moving pation of these resources depends on the definition of the
their consumption out of potential scarcity conditions. demand for firm supply and the cost-allocation method-
As mentioned in the “Different Modes of Demand Par- ology. Regulators should define accurate methodolo-
ticipation in CRMs” section, the real driver of CRM costs gies that allow computing the demand for firm supply as

70 IEEE power & energy magazine july/august 2023

disaggregated as possible. The most significant advantage All these complexities for the participation of demand
of this approach is that it facilitates the participation of resources in the supply side of the capacity market, if not
consumers in the side of the CRM where they belong, i.e., properly addressed, may result in significant inefficiencies
the demand side. The regulator would define the demand in the operation of the CRM. Regulators should strike the
for firm supply for each end user or broader categories of right balance between supporting DR and ensuring the per-
them. Consumers would then be allowed to modify this formance of the capacity mechanism.
value, defining the capacity they would like to be covered
by the capacity mechanism and at which they would be Acknowledgment
allowed to withdraw during scarcity conditions. This article has been elaborated in the framework of the
A disaggregated definition of the demand for firm sup- research project Flexener, financed by the Center for the
ply also allows a more efficient cost allocation. In fact, Development of Industrial Technology (CDTI) of the Span-
this demand is the real driver of CRM costs; these costs, ish Ministry of Science and Innovation, in the context of the
once the capacity market is cleared, should be considered call Misiones CDTI (grant MIG-20201002).
as sunk costs, and they will not vary if consumers reduce
their demand during the delivery period below the value For Further Reading
that was procured for them. If the demand for firm supply A. Pototschnig, J.-M. Glachant, L. Meeus, and P. Ranci Or-
is disaggregated, CRM charges could be easily applied to tigosa, “Recent energy price dynamics and market enhance-
the demand for firm supply allocated to each consumer (or ments for the future energy transition,” European Union,
broader categories) through fixed charges. Fixed charges Brussels, Belgium, FSR Policy Brief, May 2022. [Online].
could also be applied on a proxy basis, for instance, using Available: https://cadmus.eui.eu/handle/1814/73597
historical consumption during scarcity conditions. Other C. Batlle, P. Mastropietro, and P. Rodilla, “Redesigning
approaches for cost allocation could try to foster some sort residual cost allocation in electricity tariffs: A proposal to
of implicit participation of demand in the capacity market balance efficiency, equity and cost recovery,” Renewable
by reacting to the economic signals conveyed by charges. Energy, vol. 155, pp. 257–266, Aug. 2020, doi: 10.1016/j.
This goal could be achieved, for instance, by applying renene.2020.03.152.
capacity charges during scarcity conditions, although P. Brito-Pereira, P. Mastropietro, P. Rodilla, L. A. Bar-
such an approach may endanger cost recovery. CRM costs roso, and C. Batlle, “Adjusting the aim of capacity mech-
can also be recovered through simple volumetric charges anisms: Future-proof reliability metrics and firm supply
applied over a large number of hours, as is done today in calculations,” Energy Policy, vol. 164, May 2022, Art. no.
many CRMs. However, these charges do not send any effi- 112891, doi: 10.1016/j.enpol.2022.112891.
cient signal to consumers and can be equated to a de facto T. Schittekatte, I. Momber, and L. Meeus, “Future-proof
socialization of these costs. tariff design: Recovering sunk grid costs in a world where
If consumers are not allowed to take part in the definition consumers are pushing back,” Energy Econ., vol. 70, pp.
of the demand for firm supply, then they can be allowed to 484–498, Feb. 2018, doi: 10.1016/j.eneco.2018.01.028.
participate only in the supply side of the capacity market, T. Brown, S. Newell, K. Spees, and C. Wang, “Interna-
where they could sell DR services. This approach is actually tional review of demand response mechanisms in whole-
the most widely adopted in capacity mechanisms. However, sale markets,” Brattle, Boston, MA, USA, Rep., 2019.
it presents several complexities, stemming from the fact that [Online]. Available: https://www.aemc.gov.au/sites/default/
the same demand is represented twice in the capacity market, files/2019-06/Updated%20International%20Review%20
both in the supply side and in the demand side. This situation of%20Demand%20Response%20Mechanisms.pdf
could result in the so-called double-remuneration problem, “Baseline methodology assessment,” Elia, Brussels, Belgium,
when a demand resource is remunerated for reducing its load Final Rep., 2021. [Online]. Available: https://www.elia.be/-/
during scarcity conditions, but by doing so, it also reduces its media/project/elia/elia-site/public-consultations/2021/20210927
contribution to the coverage of CRM costs. _study_baseline_methodologies_draft_clean_en.pdf
The participation on the supply side also requires
methodologies for the definition of a baseline. As men- Biographies
tioned in the article, the most widespread methodologies Pablo Rodilla is with the Institute for Research in Technol-
are historical (e.g., high-X-of-Y) and control-group base- ogy, Comillas Pontifical University, 28015 Madrid, Spain.
lining. In theory, demand resources should be required Paolo Mastropietro is with the Institute for Research in
to provide exactly the same reliability product as other Technology, Comillas Pontifical University, 28015 Madrid,
resources since they compete in the same market. How- Spain.
ever, several regulators have defined specific products Paulo Brito-Pereira is with the Institute for Research in
that are tailored to DR services and are meant to reduce Technology, Comillas Pontifical University, 28015 Madrid,
the risk perceived by these agents and to incentivize Spain.
p&e
their participation.

july/august 2023 IEEE power & energy magazine 71

 Assuring a
Sustainable
Decarbonization
By Tim Schittekatte and Carlos Batlle

E
EUROPE STARTED TO GO THROUGH AN EXTREMELY calls to overthrow the regulatory compound gradually built
severe energy crisis in the summer of 2021. The Brussels- up over the past two decades and more. It is worth starting out
based think tank Bruegel reported that governments spent by pointing at the actual reason behind the current urgency
billions of euros, representing several percentage points of to change the regulatory compound in the European Union
their gross domestic product, to shield consumers and indus- (EU): (marginal) energy prices have reached sustained and
try from high prices (Figure 1). Even when considering that never expected high levels, and there are reasons to think
substantial public support, many end users were (at the time that this is not necessarily going to be an exceptional situa-
of writing, in February 2023) still facing energy affordabil- tion. Adding to this, also much earlier than expected, invest-
ity issues. At that time, it was not possible to foresee the ment costs of renewable energy sources (RES) have been
end and whether an unprecedented scenario of a period of significantly reduced. RES appear now not only to be by far
sustained high prices could repeat itself. However, what the the cheaper alternative power generation resources but also
energy crisis showed was that although it was a gas crisis, to be capable of collecting significant income when partici-
the current regulatory power market compound proved to be pating in the spot market. These two factors have led to a
fragile to political interference. In this article, we elaborate political desire to allow end users (in some cases, specific
upon a proactive regulatory-driven solution with the aim categories of customers) to benefit from these reduced costs,
to protect (certain tranches of) end users from periods of even if this might imply reconsidering the rules governing
sustained high electricity prices. Thereby, political turmoil power markets that have been undisputable so far.
leading to potential negative consequences for the ongoing In a theoretical market context with strictly zero entry
decarbonization process can be avoided. We call our pro- barriers, the current crisis would be nothing less than a great
posal affordability options. opportunity. From today to tomorrow, thousands of renew-
At the time of writing, political interference manifested able megawatts could connect. Since there would be a severe
itself in costly interventions in the functioning of power mar- risk to new entrants of what now has been called cannibal-
kets (e.g., revenue caps and fuel subsidies for thermal gener- ization, they would necessarily have to rely on some sort
ators as the so-called Iberian exception) and in more radical of long-term commitments with end users. The massively
entering renewables would quickly bring overall price levels
Digital Object Identifier 10.1109/MPE.2023.3269540
down by selling their currently below-market-price energy,
Date of current version: 21 June 2023 considering not only their operating costs but also capital

72 IEEE power & energy magazine 1540-7977/23©2023IEEE july/august 2023

 ©SHUTTERSTOCK.COM/NICOELNINO

of the day-ahead (and intraday) market, billions of euros are

Affordability Options saved each year across the EU. Any change to the spot mar-
ket’s price setting rules, as some radical proposals for “market
reforms” apparently aim to do, risks fragmenting the Euro-
pean market. As discussed, for instance, in Hogan 2022, in a
future with a more heavily decarbonized power mix, marginal
expenditures and a reasonable rate of return. But the fact that spot pricing becomes even more important than it already is
the power market is far from this theoretical ideal needs lit- today; it is the only suitable way to coordinate increasingly
tle explanation, for entry barriers (technical and economical) volatile supply and increasingly controllable demand, stor-
are very significant. It is in this context that the open (and age, and grid flows. Obviously, the European spot power mar-
like any other marginal) market framework is severely ques- ket design can and should be gradually improved over time.
tioned. However, the market framework is a compound of Examples are fully locational prices, less complex and more
many interrelated mechanisms, and the fact that the current convex bidding formats, the removal of utility portfolio-based
market outcomes might deviate from what politicians would balance-responsible parties, and scarcity pricing.
desire does not mean that all its building blocks are malfunc- What has never worked are long-term markets. More
tioning. In this article, we discuss two of these important precisely, there is a total lack of sufficient electricity price
building blocks: spot markets and long-term markets. hedging opportunities beyond two years in organized for-
Spot power markets—even though often seen as the core ward markets; i.e., long-term markets are “incomplete.” The
issue by politicians and the wider public—have been work- conclusions of the EU Agency for the Cooperation of Energy
ing as they were supposed to do. Spot price signals lead to Regulators’ final assessment of the EU wholesale electricity
the dispatch of the least-cost resources, the efficient organiza- market design were also largely aligned in this respect. It
tion of cross-border trade, and, if end-user tariffs are properly is not the objective of this article to delve into the reasons
designed, the possibility for end users to optimize their con- behind this market flaw (e.g., vertical integration generation/
sumption patterns. Importantly, due to the successful coupling retail and a lack of demand-side participation in long-term

july/august 2023 IEEE power & energy magazine 73

 markets, partly due to transaction costs but mainly due to the lead to a (significant) transfer of income from the generators
trust in governmental intervention in times of stress). How- to consumers during periods of sustained high spot prices.
ever, it is undisputed that long-term market incompleteness In the current European context, capacity is not the problem:
has been an issue of concern for years and that there has not no blackouts and rolling brownouts are witnessed. There is
been any advance along these lines. Hence, any proposal for still a lot of work to do to improve the design of these mecha-
the improvement of the existing regulatory compound should nisms. Although this discussion is of utmost importance, we
be focused on completing the long-term market rather than deem it out of the scope of this article.
making any change to the short-term market. The aim of support schemes for RES is to provide revenue
How to complete the long-term power market is the topic certainty for new investments in carbon-free generation tech-
of this article, particularly to provide those more sensitive nologies. RES support schemes are also not designed to pro-
end users with some sort of hedge and also to prevent politi- tect against affordability issues, but some types of RES sup-
cians from panicking. We divide the article into three main port do, rather by coincidence than by design. For example,
parts. First, we explain the rationale behind the need for a under contracts for differences (CFDs), RES generators sell
regulatory-driven complement to the long-term market, aim- their production in the spot market and receive/pay the dif-
ing at the mitigation of affordability concerns. Second, we ference between the preagreed strike price and the reference
describe the affordability option product design. Third, we price. Currently, strike price levels are typically under the
discuss the procurement of affordability options, splitting average spot prices witnessed in the past year. Consequently,
the discussion up between new and existing generators. We significant income is transferred from CFD holders to their
end with a summary. counterparties, which indirectly (depending on the tariff reg-
ulation) transfer (or should transfer) this income to end users.
Completing the Long-Term Market to However, apart from a few cases in South America (e.g.,
Mitigate Affordability Concerns Peru and Brazil), these regulatory mechanisms are mainly
The issue that power markets have significant entry barriers focused on promoting adequate investment on the generation
and are far from being complete has been recognized for a side, and thus, they do not necessarily hedge future electric-
long time, which has led to complements to the energy-only ity bills. In the current context, the difficulty for politicians
market idea developed decades ago. Since the implementa- and, in general, the wider population is to understand how it
tion of electricity markets worldwide, first via the design of is possible that some sort of hedge for demand in case prices
stranded cost mechanisms and then through different sorts could skyrocket was not equally envisaged. Implicitly trusting
of subsidization tools (mainly) for nonemitting technologies in governmental protection in case of need (as the EU energy
as well as via capacity remuneration mechanisms (CRMs) crisis has confirmed), end users have evidenced their relent-
in some contexts, policy makers have intervened with the less insufficient participation in forward markets. The crisis
expectation to guarantee at least a “reasonable” floor on the also shows that the same is true for several retailers. In any
income of the generation capacity deemed necessary. These case, there is no doubt that the direct impact of the current
complements are variants of (mostly) centrally organized price levels on the financial health of certain tranches of con-
auctions awarding long-term contracts. sumers is a major issue that needs to be tackled. Beyond that
The main objective of CRMs is to complete the market by consideration, this scenario of electricity prices reminds us of
reducing uncertainty in future revenue streams of resources a higher-order threat: the potential loss of trust (and patience)
that are deemed necessary to continuously guarantee a suffi- in the political class (and the mass media) in the whole market
cient level of resource adequacy. None of the existing CRMs compound. The probability of overreaction after a price shock
Allocated Funding (Billion Euros)

300 8
Funding as Percentage of
Gross Domestic Product

250
6
200

150 4
100
2
50

0 0
Germany Italy Greece The United Romania France Spain Poland Belgium
Netherlands Kingdom

figure 1. The government funding to shield households and industry from high energy prices in the 10 most populous
countries in the European Union and the United Kingdom, from September 2021 to January 2023 (and updated on
13 February 2023). (Data source: Breugel.)

74 IEEE power & energy magazine july/august 2023

 Governments spent billions of euros, representing several percentage
points of their gross domestic product, to shield consumers and
industry from high prices.

of this nature, potentially leading to a major step back in the sumers considered particularly vulnerable) during periods of
decarbonization process, can no longer be seen as a risk: it is sustained high energy prices. At the same time, the product
a fact. The Australian market suspension that took place in must not distort incentives provided by spot markets for both
summer 2022 can be taken as another illustrative example. generation and load. In short, what an affordability option
Risk-averse governments cannot directly hedge them- does is introduce a preagreed transfer of the gains of genera-
selves against that risk unless they have a stake in the tors that are profiting from periods of sustained high prices to
electricity generation companies and redistribute their consumers suffering affordability issues. This protection does
inframarginal rents. However, doing so would, in some not come for free; consumers pay a fee for this “insurance”
countries, imply the (forced) divestment of privately owned (such as a regulated RES levy in the bill), while generators
companies. Also, in the EU, the direct redistribution of any exchange part of their uncertain future revenues for a regular
rents to electricity consumers would have been a viola- payment. In what follows, we discuss in more detail how three
tion of State aid rules in force until the crisis took place. key design choices of affordability options are determined to
The only reasonable way to hedge that risk, at least in that comply with the original aim: the choice for an option product
context, is to introduce a hedge on behalf of the consum- and not an obligation, the settlement frequency, and the level
ers that are deemed in need of bill protection. The intro- of the strike price. We also provide a brief discussion on the
duction of such a hedge would be welfare enhancing. The difference with reliability options and a numerical example.
risk for sustained high prices would be transferred from First, the introduction of a financial option is more suit-
risk-averse consumers (and, indirectly, the risk-averse gov- able than an obligation (i.e., a two-sided CFD), as the objec-
ernment) to less risk-averse market parties that can bet- tive is to protect end users from periods of sustained high
ter manage this risk. The transferred risk would create an prices, rather than to entirely fix the price paid for electricity
incentive for those market parties to hedge themselves by under any scenario. It can be argued that a CFD would also
investing in generation assets (e.g., RES plus storage) and/ hedge end users in the long run, without necessarily mini-
or the purchase of long-term gas contracts. A chain of long- mizing their incentive to respond to short-term signals; this
term hedging contracts would possibly be “ignited,” which is partially true, but we consider that an option would be
would lead to a more efficiently functioning power system. a less intrusive solution. More precisely, when covered by
So far, the need for generators to hedge themselves against an option, the electricity bill would remain unaltered during
very high gas prices, at least in the middle to longer term, is periods of “normal electricity” prices, while a CFD would
limited, as they can directly pass through the costs of high have an impact under any price scenario.
gas prices via high electricity prices. Second, the objective of the hedge provided by the
An important question is whether each of these desirable affordability options is not to protect consumers from spo-
policy goals that the so-called energy-only markets have very radic price spikes. Instead, the objective of the hedge is to
rarely shown to deliver in their current shape (resource ade- prevent sustained high prices from threatening the financial
quacy, decarbonization, affordability, and others that we do not health of certain categories of end users. What eventually
discuss) requires its own procurement mechanism and long- matters for end users are not a few hours of very high prices
term product. Even though politically harder to pursue due to (which can have a moderate impact on the monthly bill) but
additional complexity, the stance we take is that it seems more months with very high bills. In this regard, an Asian option
appropriate to tackle each goal separately. However, it is hard for which the payoff depends on the average of all prices
to deny that there are spillovers. These spillovers can be posi- over a specific period seems to be a suitable product design,
tive or negative; e.g., RES support aimed at decarbonization as opposed to vanilla European and American options,
potentially mitigates affordability issues but can worsen ade- where the payoff is determined at a single expiration date.
quacy concerns (especially when RES support schemes are ill We propose that affordability options have a monthly fixing
designed). In this article, we focus on the affordability concern. to be aligned with typical bill cycles. A “strip” of affordabil-
ity options should last sufficiently long; we propose a dura-
Product Design of Affordability Options tion of five to 10 years (respectively, 60 to 120 “bill cycles”).
The aim of the regulatory-driven long-term complement is to Third, the level of the strike price can be interpreted as
protect at least some categories of consumers (e.g., those con- the maximum average electricity price (arithmetic or load

july/august 2023 IEEE power & energy magazine 75

 weighted) that is deemed sustainable over the given settle- compensate for the high electricity costs. However, the same
ment period. What that exact price level will be is at the dis- customers would still be incentivized to consume more when
cretion of the regulator (e.g., an average day-ahead electricity prices were low and vice versa.
price of €100/MWh over a month). Obviously, the lower the
strike price, the higher the option premium and vice versa. Engaging With Newly Connecting
Affordability options are not to be confused with reli- and Existing Generators
ability options that have been introduced to mitigate ade- In this section, we go into more detail on how we see the
quacy concerns in, for example, Colombia, Ireland, and completion of the long-term market to avoid affordability
Italy. The idea of reliability options is to induce invest- concerns. We divide the discussion between new entrants
ment (and retain installed capacity) that is flexible enough and existing generators.
to support the power system when it is very tight. Moments
of high stress are reflected by scarcity prices. This reason- Newly Connecting Generators: Auctions,
ing behind the design of reliability options leads to differ- Bundling Access, and Long-Term Contracts?
ent design choices: an hourly settlement and a relatively The crisis has woken the demand side. In contrast to the situ-
high strike price. Table 1 shows the interactions between ation before the crisis began, there is currently an increased
the choices for the settlement frequency and strike prices. eagerness to sign long-term contracts with new entrants. The
Figure 2 provides an illustration of the functioning of developers that were recently granted access to the network
affordability options. Figure 2(a) shows the hourly prices in on a first come, first served basis can benefit from their appli-
the Spanish day-ahead market in 2020 and 2021. Two dif- cation. At current spot price levels, these developers of renew-
ferent abnormal price scenarios are highlighted in different able power plants can go merchant or sign lucrative long-term
colors. In cyan, January 2021: in the second week of that contracts, in most cases collecting a higher income than the
month, a persistent blizzard affected half of the country and levelized cost of energy of their investments. It might take
led to the occurrence of some hours with high prices. In red some time for spot price levels to go down. Also, the pace of
is December 2021, a month in the middle of the ongoing connecting renewables seems to have slowed down in several
energy crisis. Figure 2(b) and (c) provides greater detail of countries, mostly due to administrative issues (permitting
the prices resulting in these two months. and the like), a lack of or limited availability of physical grid
If the regulatory decision would have been to hedge, for connections, and, more recently, supply chain bottlenecks.
instance, vulnerable customers with an affordability option Two questions arise when thinking about new entrants, as
at a strike price of, for example, €100/MWh and a flat load summarized in Table 2: how to deal with the network con-
profile, the impact in both cases would have been radically nection and how to deal with exposure to price risk.
different. In January, even though spot prices were above
€100/MWh 51 times during the month, the average price Auctions to Enhance Competition for
was €60/MWh. Therefore, the affordability option would Accessing the Network and End Users
not have been exercised (“out of the money”). Conversely, Regarding the network connection, the lesson learned should
the average price in December was €239/MWh, and the be: no more granting network access for free, not for any
electricity bills of vulnerable customers would have been resource, renewable, or other (at least not at the transmis-
beyond the acceptable range. The affordability option would sion level). A more adequate mechanism to allocate scarce
have been exercised, resulting in a payout of €139/MWh. connection opportunities is the introduction of auctions for
Imagine that, on behalf of each vulnerable consumer, granting network access. Auctions for granting network
300 kWh were contracted per month. In that case, each access are not a new idea, but it has not been generalized,
vulnerable consumer would receive €41.70 per month to so far. Examples are auctions of offshore wind sites in North

table 1. The tradeoffs and opportunities for the design parameters of the auctioned-off call options and the
impact on the cost of the option premium.
High Strike Price (e.g., €1,000/MWh) Low Strike Price (e.g., €100/MWh)
High-frequency Reliability options in Colombia, Ireland, and Italy: Constant protection from high prices, limited
settlement (e.g., hourly) protection from scarcity prices, exposure to short- exposure of short-term signal for consumers
term signal for consumers
Ambiguous impact on cost option premium High option premium
Low-frequency No protection from scarcity price and sustained Affordability options: protection from sustained
settlement (e.g., high prices, full exposure to short-term price signals high prices, exposure to short-term signal for
monthly) for consumers consumers
Very low option premium, as option is (almost) Ambiguous impact on cost option premium
never exercised

76 IEEE power & energy magazine july/august 2023

Sea countries and the United States. The ability to auction of customers. To that extent, RES auctions for mature technol-
the right to connect not only allows leveraging the benefits ogies gradually became nothing more than a sort of CRM, of
of competition for access to the system but also makes more which the objective was “to complete” the long-term market
efficient coordination of generation and transmission capac- and thus level the playing field between incumbents and often
ity expansion possible, which is a major challenge today. nonvertically integrated new entrants.
Regarding the exposure to price risk, the question becomes Following that reasoning, auctioning network access bun-
how to auction scarce network capacity. As in current Portu- dled with long-term contracts could lead to higher competi-
guese auctions, there are two extreme alternatives: auction- tive pressure. Competition would push the price levels awarded
ing an annual fee for access and auctioning network access in the long-term contracts closer to the levelized cost of new
bundled with a long-term contract. In the case of an annual entrants and thus further from the market value of the gener-
access fee, the choice between selling electricity in the spot ated electricity. At the same time, the feasibility of massively
market and signing long-term contracts with private entities deploying RES generation to reach decarbonization targets
is up to developers. Shortly before the crisis began, incum- would not be impacted. Another important advantage, in this
bents claimed that there was no longer a need for governments context of auctioning long-term contracts jointly with network
to grant RES support in the form of any sort of long-term
contracts. The main argument was that the levelized cost of table 2. A stylized summary of key choices
renewables was reaching market value levels. The counter- to make about new entry.
argument for keeping auctions awarding long-term contracts Choices
for RES in place was that new entrants could not easily find
counterparties for power purchase agreements (PPAs). New Network First come, Auction for access
connection first served
entrants are in a significantly worst position than vertically
integrated incumbents, which already have direct access to Exposure to Merchant Auction for long-
price risk term contract
counterparties thanks to their historically inherited portfolio

400
2020 2021

300
Spot Prices (€/MWh)

200

100

0
(a)

150 500

125 400
Spot Prices (€/MWh)
Spot Prices (€/MWh)

100
300
75
200
50

25 100

0 0
1 7 14 21 28 31 1 7 14 21 28 31
Day of the Month Day of the Month
(b) (c)

figure 2. (a) The hourly day-ahead market prices in Spain in 2020–2021. (b) The hourly day-ahead market prices in Spain
in January 2021. (c) The hourly day-ahead market prices in Spain in December 2022.

july/august 2023 IEEE power & energy magazine 77

 RES entrants via centralized auctions for government-backed CFDs
can slowly soften the medium- to long-term volatility of certain
categories of end user prices.

access, is that counterparties could be protected against peri- of certain categories of end user prices. However, this solu-
ods of sustained high prices. So far, counterparties in these tion can be only partial. In the short to medium term, we
centralized auctions have always been (directly or indirectly) cannot expect that new RES alone can solve the affordability
the government, at least in the EU. In addition to having the concern. For at least a decade, the total volume of new RES
possibility to sign bilateral PPAs, there might be good reasons electricity production is going to have a relatively limited
to allow suppliers and large consumers, such as industrials, to impact on final bills. Moreover, unfortunately, in the absence
voluntarily participate on the buyer side. Such an arrangement of abundant storage, not just short-term but also seasonal, the
would basically imply a sort of centralization of the procure- market price that consumers pay will increasingly diverge
ment of standardized PPAs. However, in periods of sustained from the price that new renewables receive in the market.
high prices, only those who are on the buyer side would be This divergence happens due to the mismatching of end
hedged. In case the government is the counterparty, the deci- users’ consumption and RES production profiles and is espe-
sion of who should enjoy the value of the hedge in times of cially an acute problem for solar. As discussed in the follow-
sustained high prices is in the hands of the government. In case ing section, in this context, only large, and maybe even more
the counterparties are mostly third parties, depending on who important, fully diversified, generation portfolios provide the
those third parties are, residential and small consumers might opportunities to truly address the affordability issue.
be less protected against affordability concerns.
Existing Generators: A Regulatory-Driven
Long-Term Hedge Format for Newly Auction for Affordability Options
Connected Generators In case the crisis continues longer than expected, the current
We focus on intermittent RES as new entrants, as they represent affordability issue will remain active, while in case the cri-
the bulk of expected newly entering capacity. The prime con- sis winds down, an affordability issue will resurface when a
sideration of long-term contracts is that they reduce risks for period of sustained high prices returns.
project developers while keeping short-term incentives for A very tempting option for governments to lower prices
efficient operation by exposure to the spot market (at least) on in the short run would be to hurry and negotiate some sort of
the margin. Risk mitigation is key to lower financing costs, long-term contracting with specific generators (e.g., nuclear
which are crucial, as these assets are capital intensive. In that plants) and incumbents. The current context of abnormally
regard, the best contract design would likely be a CFD (obli- and sustained high market prices would be the worst moment
gation) since it provides more revenue certainty for the devel- to enter into such a commitment, particularly if there were
oper over (one-sided) call options. no way (time and manner) to fully open the negotiation to
CFDs are not new; they have been auctioned for many every potential (existing, i.e., already installed or future)
years for RES projects in Europe. What is important is that counterparty to maximize competition. A bilaterally negoti-
the exact contract design evolves as more RES enter the ated price, absent competitive pressures, would necessarily
power system. We advocate for a contract format that resem- end up being a bad deal for consumers in the medium to long
bles a standard CFD but keeps dispatch incentives intact run. Governments could be relieved by seeing a decrease of
without significantly increasing investment risk. More pre- prices in the short run, but consumers would pay higher bills
cisely, we recommend a capacity-based support mechanism in the middle to long term when prices normalized again.
complemented with ex-post compensations and penalties A preferred alternative approach is to levy a nondistortive
resulting from a plant’s performance compared to a refer- windfall profit tax on generators, as long as there is the politi-
ence plant. Such a mechanism was implemented in Spain cal urge to do so, and use these revenues to mitigate afford-
via royal decree 413/2014. A detailed discussion of the exact ability concerns. When the crisis calms down, we propose
design of well-functioning CFDs, of which the appropriate the organization of regulatory-driven auctions for afford-
format could depend on technology characteristics, while ability options. The regulator must decide about the volume
incredibly important, is beyond the scope of this article. of affordability options it will procure. This decision will be
What is key for the discussion in this article is that new based on which end users are deemed to need (or want) pro-
RES entrants via centralized auctions for government-backed tection from sustained high prices and the total volume of
CFDs can slowly soften the medium- to long-term volatility production already under CFDs (existing and new entrants).

78 IEEE power & energy magazine july/august 2023

 The risk of an overreaction after a price shock of this nature,
potentially leading to a major step back in the decarbonization
process, is not irrelevant.

Such an assessment is not very different than, for example, incompleteness, i.e., a lack/insufficient availability of long-
resource adequacy forecasts that regulators perform. term hedges. The solution, thus, must also be sought in that
To limit regulatory interference in the market and increase direction. We discussed the rationale behind complementing
competitive pressure, we recommend minimizing the volume the long-term market, with the aim to proactively mitigate
of affordability options and opening auctions to all generation affordability concerns. We described our proposal to com-
technologies. Also, a reserve (maximum) price should be con- plete the long-term market: affordability options. Affordabil-
sidered. Protected end users might be only “standard” vulnera- ity options are a financial product that works as market-based
ble consumers, i.e., consumers facing energy poverty in normal “bill insurance” and is procured by the regulator/government
price scenarios, or a larger share of residential and commercial on behalf of (tranches of) consumers, while not distorting
consumers that would suffer significantly from periods of sus- spot prices signals. We explained how affordability options
tained high prices. End users that are not, by default, covered can be procured within the current regulatory framework.
by affordability options (e.g., industrial consumers) should
have the right to opt in and participate in auctions, with the For Further Reading
same rights and future obligations. Besides all existing genera- L. Barroso, F. D. Munoz, B. Bezerra, H. Rudnick, and G. Cunha,
tion, new generation should be able to participate to add com- “Zero-marginal-cost electricity market designs: Lessons learned
petitive pressure. In that regard, the auction lead time needs to from hydro systems in Latin America might be applicable for
be sufficiently long. New generators can be generators that do decarbonization,” IEEE Power Energy Mag., vol. 19, no. 1,
not enter via centralized auctions, for example, wind colocated pp. 64–73, Jan./Feb. 2021, doi: 10.1109/MPE.2020.3033398.
with sufficient storage capacity. Maximizing competitive pres- C. Batlle, P. Rodilla, and P. Mastropietro, “Markets for
sure is much needed, considering that large diversified electric- efficient decarbonization: Revisiting market regulation and
ity generation portfolios are often concentrated. design,” IEEE Power Energy Mag., vol. 19, no. 1, pp. 20–28,
To ensure that generators have a natural hedge, they are Jan./Feb. 2021, doi: 10.1109/MPE.2020.3033393.
required to prove that they can honor option contracts. Thus, T. Schittekatte and C. Batlle, “Power crisis in the EU
having only sufficient generation capacity (in megawatts) is 3.0: Proposals to complete long-term markets,” MIT Center
not enough. Also, proof of being able to deliver the energy is Energy Environ. Policy Res., Massachusetts Inst. Technol.,
needed (e.g., a long-term gas contract for a gas-fired power Cambridge, MA, USA, CEEPR WP 2023-04 and MITEI
plant and historical production time series for RES with Working Paper 2023-01, Feb. 2023.
storage). The exact implementation of these requirements “National fiscal policy responses to the energy crisis,”
and possible penalty schemes need to find a balance between Bruegel, Brussels, Belgium, Mar. 2023. Accessed: Feb. 13,
minimizing financial risk for option buyers and minimum 2023. [Online]. Available: https://www.bruegel.org/dataset/
entry barriers for option sellers. national-policies-shield-consumers-rising-energy-prices
W. W. Hogan, “Electricity market design and zero-marginal
In Summary cost generation,” Current Sustain. Renewable Energy Rep., vol.
The ongoing scenario of sustained high electricity prices 9, no. 1, pp. 1–12, Feb. 2022, doi: 10.1007/s40518-021-00200-9.
in Europe exposes a higher-order threat: the potential loss D. Newbery, “Efficient renewable electricity support: De-
of trust (and patience) in the political class (and the mass signing an incentive-compatible support scheme,” Energy J., vol.
media) in the whole power market compound. The risk of 44, no. 3, pp. 1–22, Jan. 2023, doi: 10.5547/01956574.44.3.dnew.
an overreaction after a price shock of this nature, potentially
leading to a major step back in the decarbonization process, Biographies
is not irrelevant. It is currently not possible to foresee when Tim Schittekatte is with the Massachusetts Institute of
this crisis will end and whether this unprecedented scenario Technology Energy Initiative, Cambridge, MA 02142 USA,
of a period of sustained high prices could repeat itself. and Florence School of Regulation, 50133 Firenze, Italy.
Even though spot power markets are blamed, what Europe Carlos Batlle is with the Massachusetts Institute of Tech-
has been facing is a natural gas crisis. Marginal spot pric- nology Energy Initiative, Cambridge, MA 02142 USA; Flor-
ing of electricity will become even more vital in the future. ence School of Regulation, 50133 Firenze, Italy; and Comillas
The current affordability issues stem from power market Pontifical University, 28015 Madrid, Spain. p&e

july/august 2023 IEEE power & energy magazine 79

 book review

power flow control

solutions for a modern smart grid

Power Flow Control This book is

Solutions for a Modern
Grid using SMART Power a clear and
Flow Controllers
accessible

P
—By Kaylan K. Sen and Mey Ling Sen
introduction
POWER FLOW CONTROL SOLUTIONS
for a Modern Grid Using SMART Power to power flow
Flow Controllers provides students and
practicing engineers with the foundation control in complex
required to perform studies of power transmission
system networks and mitigate unique
power flow problems. systems.
This book is a clear and accessible
introduction to power flow control in
complex transmission systems. Starting
with basic electrical engineering ✔ provides computer simulation
concepts and theory, the authors codes of the various PFCs in the
provide step-by-step explanations of the PFCs, the authors explain each topic EMTP programming language
modeling techniques of various power in straightforward engineering terms, ✔ contains numerous worked ex-
flow controllers (PFCs), such as the corroborating theory with relevant amples and data cases to clarify
voltage-regulating transformer, the phase mathematics. Throughout the text, complex issues
angle regulator, and the unified PFC. easy-to-understand chapters present ✔ includes results from the simula-
The textbook covers the most up-to-date characteristic equations of various PFCs, tion study of an actual network
advancements in the Sen transformer explain modeling in the electromagnetic ✔ features models based on the real-
(ST), including various forms of two- transients program (EMTP), compare world experiences of the authors,
core designs and hybrid architectures for transformer-based and mechanically coinventors of the first-generation
a wide variety of applications. switched PFCs, discuss grid congestion flexible ac transmission system
Beginning with an overview of the and power flow limitations, and more. (FACTS) controllers.
origin and development of modern This comprehensive textbook:
✔ describes why effective PFCs —Shayan Behzadirafi
Digital Object Identifier 10.1109/MPE.2023.3269546
should be viewed as impedance
Date of current version: 21 June 2023 regulators p&e

80 IEEE power & energy magazine july/august 2023

history
Joseph J. Cunningham

city of innovation
New York City at the birth of electrical systems

O
OV ER T I M E , CERTA I N CI T I ES
became associated with a primary For this issue’s “History” article, Joseph J. Cunningham returns for the 12th time
industry: Detroit with automobiles, to our pages. In this article, Joseph shares the history of New York City at the
Pittsburgh with steel, and Chicago infancy of electric lighting and power systems. During the treatment of this pe-
with railroads. In the history of elec- riod of electric history, Joseph shares stories of the early pioneers of success,
trical manufacturing, the two primary lawsuits, suicide, failures, knighthood, and a sidewalk gunfight.
cities that come to mind are Sche-
Joseph has contributed to our “History” pages on topics including industrial
nectady, NY, for General Electric and
electrification, electric utility power systems, and electric rail transportation.
Pittsburgh, PA, for Westinghouse.
Joseph’s book, New York Power, was published in 2013 by IEEE History Cen-
Indeed, Schenectady was so linked
to General Electric that a line in the ter Press. We welcome back Joseph as our history author for this issue of IEEE
1956 movie Earth Versus the Flying Power & Energy Magazine.
Saucers referred to “the largest gen- John Paserba
erator Schenectady makes,” as it was Associate Editor, “History”
assumed that audiences would under-
stand the reference. However, at the
birth and early infancy of the industry,
it was New York City—specifically, them used machines to perform their the development of ac (such is usually
lower Manhattan—that was a center tasks, and machines required power. attributed only to George Westing-
not only of pioneer installations but of Steam was the standard, but it was house), began with a factory in Man-
the business and component manufac- complex and left much to be desired. hattan. The Westinghouse Electric
turing as well. While electrical equipment innovators and Manufacturing Company also es-
While pioneer electric light in- focused initially on lighting, expan- tablished a factory in New York City.
stallations were occurring across the sion into motors followed, often within Before exploring the efforts of those
country and around the world, the a few months. major firms, a look at some of the for-
dense business and commercial cen- Transportation of heavy machinery gotten minor players is in order. While
ter of lower Manhattan offered the was expensive; thus, it was desirable it is impossible to know just how many
best opportunity for new electric light to have manufacturing, or at least as- small independent companies existed,
and power systems (Figure 1). As for sembly, near the users. Thomas Edi- some made a mark before disappear-
lighting, the business center of the city son’s Pearl Street power station is the ing into history.
was an attractive potential market. A most famous of the pioneer systems;
ready market for power in the form of three distinct manufacturing operations The Early Pioneers:
electric motors was provided by the were developed to support it. Electric Success, Lawsuits, Suicide,
numerous small businesses that were motor pioneer Leo Daft constructed Failures, Knighthood, and
crammed into a few city blocks: jew- both component manufacturing and a Sidewalk Gunfight
elers, printers, publishers, woodwork- power generation systems in the area.
ers, ship chandlers, and more. All of Frank Sprague, an innovator of elec- The Electro-Dynamic
tric motors and railways, also began Lamp Company
Digital Object Identifier 10.1109/MPE.2023.3269552
with facilities in the city. The Crocker- The first recorded pioneer on the New
Date of current version: 21 June 2023 Wheeler Company, a major factor in York City scene was the inventor

july/august 2023 IEEE power & energy magazine 81

 William Sawyer, born in Brunswick, lighting, electroplating, motors, or basis. However, his lamps required
ME, in 1850. As a telegraph operator, heating. His engineering office at 21 a regulating device to prevent burn-
he developed an inter- Cortlandt Street host- out, while Edison avoided that issue
est in electric power ed the development of by the use of lamp filaments of ad-
and explored practical As for lighting, a variety of technical equate resistance.
applications for it. In components related to
July 1878, Sawyer and
the business lighting that included The Sawyer-Man
financier Albon Man center of the a mechanical meter Electric Company
established the Elec- to record power con- In 1882, the Electro-Dynamic Compa-
t ro -Dyna m ic La mp city was an sumption and an au- ny was supplanted by the Sawyer-Man
Company. A complete tomatic cutoff (circuit Company, which engaged in success-
system was demon-
attractive breaker) for protection ful litigation with Edison over the de-
strated in a building potential against damage from tails of lamp patents (Figure 2). The
at Elm and Walker the failure of compo- primary success of his company was
Streets on 29 Octo- market. nents. T he Electro- not enjoyed by Sawyer, however. He
ber of that year. Their D y n a m i c C o m p a ny was troubled by alcoholism and a bad
plan was a system to supply power claimed to be the first to manufac- temper, and an ongoing dispute with a
to buildings throughout the area for ture incandescent lamps on a regular neighbor led to Sawyer shooting that

figure 1. The City of Innovation map. 1: Demonstration of the Electro-Dynamic Company in the building at Elm and
Walker Streets. 2: The Sawyer-Man factory at 510–534 West 23rd Street. 3: Daft Electric Light Company at 115 Broadway.
4: United States Electric Lighting Co. at 59–61 Liberty Street. 5: The Equitable Building (Hiram Maxim claimed it was the
first New York building with electric lights) at 120 Broadway. 6: Arnoux & Hochhausen Co. at 227 East 20th Street. 7: Excel-
sior Electric Co. at 66–68 Duane Street. 8: Edison Machine Works at 104 Goerick Street. 9: Edison Tube Works at 65 Fifth
Avenue (presumably, South Fifth Avenue, now West Broadway). 10: Edison Shafting Company on Wooster Street (possibly
in the same building as Bergmann, 104–108). 11: Bergmann Company at 292–298 Avenue B on East 17th Street. 12: Sprague
Motor Company in the Union Lead Company Building on West 30th Street. 13: Crocker-Wheeler Company at 39 Cortlandt
Street. 14: Ball Electric Light Co. of Canada, New York office and factory, on Ninth Avenue and West 27th Street.

82 IEEE power & energy magazine july/august 2023

neighbor, who lost an eye as a result. factories in lower Manhattan. The pri- but success came so rapidly that he was
Sawyer was tried and convicted despite mary Excelsior Power Company power forced to move his manufacturing op-
a claim of self-defense in which he al- station was located at 33–43 Gold erations to New Jersey.
leged that the neighbor (a doctor) had Street; the company was a successor to
displayed a gun. He was sentenced to the Excelsior Steam Power Company United States Electric
four years but expected a pardon for (see “Forgotten Pioneer Leo Daft and Lighting Co.
his importance to the electric business. the Excelsior Power Company” in the The United States Electric Lighting
While awaiting a response to that plea, “For Further Reading” section). Daft Co. was established in 1878 soon after
he died of internal hemorrhage in 1883 located additional manufacturing facil- the Electro-Dynamic Company was
at the age of 33. Litigation with Edison ities at 115 Broadway near Wall Street, founded. It was formed to market the
was resolved the following year, when
the patent examiner decided the issue
in favor of the Sawyer-Man patent.
The best years of the Sawyer-Man
Company were ahead; after success in
the disputes with Edison, the company
developed a line of lighting products
(Figure 3). Sawyer-Man was then ac-
quired by the United States Electric
Lighting Co., which was then acquired
in 1888 by Westinghouse. The Sawyer-
Man patents became the basis of the
“Stopper” lamp that illuminated the
1893 Columbian Exposition in Chicago.
The extensive Westinghouse exhibit at
that fair established the company as
one of the two leaders of the industry.
The Sawyer-Man factory was located
in midtown at 510–534 West 23rd
Street (Figure 4), a property that later
became a motor component factory of
the Westinghouse Electric & Manufac-
turing Company. figure 2. The Sawyer-Man lamp. (Source: Electrical World.)

New York Electric Light Co./

Electric Power Co. of NY
Leo Daft established the New York
Electric Light Co. on Centre Street in
1879. An Englishman of varied talents
and wide experience, he focused ini-
tially on lighting but later changed the
direction of his effort to motive power
for industry. He developed an exten-
sive distribution system of power for
industrial motors in dozens of indus-
tries in the area (Figure 5). At the start
of 1884, the initial installations of his
equipment by the Electric Power Co.
of NY were located in two buildings
at 13 and at 32–34 Spruce Street. Their
success was such that his Daft Electric
Light Company “Distributory” electric
power system was installed in two sta-
tions operated by the Excelsior Power
Company to supply power to numerous figure 3. A Sawyer-Man products advertisement. (Source: Electrical World.)

july/august 2023 IEEE power & energy magazine 83

 inventions of several inventors, especially
the advanced arc light system of Edward
Weston of New Jersey and the incan-
descent light system of Hiram Maxim.
Hiram Maxim, an inventor from Sanger-
ville, ME, later was best known for his
machine gun but, at that time, had devel-
oped an incandescent light system at his
office and factory at 43 Centre Street. He
became the chief engineer of the United
States Electric Lighting Co., and it was
claimed that he installed the first electric
lights in the city as early as 1879–1880
with an installation in the Equitable
figure 4. The Sawyer-Man factory on West 23rd Street in New York. (Source: Building at 120 Broadway.
Sawyer-Man catalog.) He engaged in litigation with
Edison over the bulb concept, which
was patented erroneously under the
name of an employee. That patent
was proven invalid, which left the
concept open to Edison’s use, or so it
was claimed. Maxim went to London
in 1881 to organize the United States
Electric Lighting Co. offices there; he
became a British subject in 1899 and
was knighted for his inventions in mil-
itary weaponry by King Edward VII
in 1901. United States Electric Light-
ing combined the Maxim and Weston
patents into its product line (Figure 6)
and continued to operate at 59–61
Liberty Street, a space that probably
included some assembly work, at least
until its acquisition by Westinghouse
in 1888.
figure 5. A Daft Electric Light Company advertisement. (Source: Daft Electric
Light Company catalog, 1887.)
Arnoux & Hochhausen
Electric Company
Another pioneer lighting company was
formed by William Hochhausen, an in-
ventor from Germany. After traveling
the world, he settled in New York City in
1867. With a background in mathematics
and physics, he pursued the development
of telegraph and alarm systems and later
generators for arc lighting and electro-
plating. By 1881, he had established, with
Anthony Arnoux, the firm of Arnoux &
Hochhausen to supply generators, arc
lights, and electroplating equipment
from a combined office, showroom, and
factory space in a former stable at 227
East 20th Street. The 9 April edition of
figure 6. A United States Electric Lighting Co. ad for Maxim and Weston lamps. Scientific American carried an adver-
(Source: Electrician and Electrical Engineer.) tisement for the company’s products, but

84 IEEE power & energy magazine july/august 2023

business must have been poor. It was re- Duane Street, with lighting for office manufacturing facilities in New York
vealed later that Arnoux, as treasurer of and loft buildings as its primary busi- City, though all were commercially ac-
the company, had invested his personal ness. Hochhausen became embroiled tive there.
funds and used his home as collateral to in litigation with Edward Weston over
support the financially distressed com- water-cooled dynamos in a battle that The Major Pioneers
pany but apparently with no success. On ultimately led to the decline of Excel-
3 July, Arnoux sat down at his office sior. It was acquired in 1890 by Thom- The Edison Works
desk and fired a 38-caliber bullet into son-Houston of Lynn, MA, one of the Thomas Edison needed space to manu-
his heart. An article in The New York founding partners of General Electric. facture components for his legendary
Times the following day described a note Thomson-Houston, a leader in the arc Pearl Street power station. Lamp pro-
to his wife that said his family would be light industry, also acquired the Brush duction had been established in Harri-
better off without him. In other notes Electric Co. of Cleveland that had been son, NJ, but heavy equipment assembly
he declared the company had not been founded in 1879 by Charles Brush, who was best located near the point of in-
promoted well. Little seems to have been is recognized by most historians as the stallation. Aside from the elimination
recorded subsequently with regard to the most significant pioneer of arc lights. of the expense of transportation, close
company or its fate. Brush, like Thomson-Houston and proximity of component manufacture
Edward Weston, was a pioneer who, to the location of use allowed rapid
Excelsior Electric Co. so far as is known, did not establish communication between factory staff
Hochhausen persevered, and a new
company, the Excelsior Electric Co. was
organized that same year to develop,
manufacture, and market his inventions
(Figure 7). Though often confused with
the Excelsior Power Company in several
instances, including this author’s previ-
ous article on Daft (see the “For Further
Reading” section), Excelsior Electric
appears to have been maintained as
a separate entity from the Excelsior
Power Company. Excelsior Power had
provided customers with mechanical
power, first by shafts driven by steam
engines, and then replaced that system
with electric motors. The aforemen-
tioned installations of the Daft system
on Spruce Street would appear to have
been Excelsior Power Company instal-
lations, though the properties may have
belonged to Excelsior Electric Co., but
no definitive data have been found. The
confusion is understandable for, at that
time, Excelsior (in Latin meaning “ever
upward”) was a name applied to many
products and businesses. A century
earlier, it had been adopted as the New
York State motto; it was also the theme
of a poem by John Greenleaf Whittier
and was even used to describe a com-
mon packing material.
Hochhausen’s designs were claimed
to be superior to Edison’s for the ability
to combine incandescent and arc light
systems and compensate for burned-
out bulbs in a circuit. The Excelsior
Electric Co. was located at 66–68 figure 7. An Excelsior Electric Co. advertisement. (Source: Electrical World.)

july/august 2023 IEEE power & energy magazine 85

 and the installation and test crews. Such Works at 104 Goerick Street (Figure 8), assembled; those included machines
proximity was a vital concern, as much founded in March 1881 near the present sent to Paris and also, probably, were
had yet to be learned with regard to the site of the Williamsburg Bridge. It con- sent to London for the demonstration
sustained operation of the components. sisted of several buildings; the first was plant at Holborn Viaduct, which pre-
Three Edison manufacturing op- a heavy industrial building converted ceded the Pearl Street operation by
erations were established in Manhat- from a former iron works. There, the eight months. The factory also supplied
tan. The first was the Edison Machine generators and related hardware were generators of different sizes for varied
applications. It employed several hun-
dred men and was also used for the
design and testing of new components.
An additional property behind it was
acquired for storage, as the demand for
space grew so extreme that lathes were
set up outside the main building and
powered by belts from inside the build-
ing. Space limitations and labor issues
led to a relocation to Schenectady in
1885, a move that formed the basis of
the later General Electric Company fa-
cilities in that city.
That same month, the Edison Tube
Works was established to manufacture
the conduits used for the underground
distribution circuits. Manufacturing be-
gan at 65 Washington Street and grew
to require a staff of 100 men. The Edi-
son Shafting Works was established on
Wooster Street in 1884 to provide belts,
pulleys, and other mechanical com-
figure 8. The Edison Machine Works at 104 Goerick Street in New York, circa ponents and became part of the Tube
1883. (Source: Edison General Electric promotional publication.) Works late in 1885. Both merged into
the Machine Works in December 1885.
A fourth company, Bergmann &
Co., was founded by former Edison
employee Sigmund Bergmann in 1881
to supply lighting fixtures, switches,
fuses, and related components from a
plant at 108–114 Wooster Street. The
need for space forced a move to a large
building at 292–298 Avenue B near
East 17th Street, which was obtained as
part of the purchase of the business of a
competitor. The initial Bergmann plant
may have shared the Wooster Street
space of the Edison Shafting Works.
Bergmann products were distributed
internationally for Edison Lighting
systems installed in other countries.
As the Edison companies shifted pro-
duction to Schenectady, the Bergmann
operation was merged into the Edison
Machine Works in 1886. That same
figure 9. A Sprague Dynamo-Electric Motors advertisement. (Source: a Sprague year, the Edison United Manufactur-
advertisement distributed at the Philadelphia International Electrical Exhibition ing Company was established as a
held in September 1884 by the Franklin Institute.) marketing agency with an office at the

86 IEEE power & energy magazine july/august 2023

65 Fifth Avenue address. Three years
later, it was reorganized as the United
Edison Manufacturing Company and,
subsequently, as the Edison General
Electric Company after acquisition of
the Sprague motor company.

Sprague Electric Motors

and Railways
Frank J. Sprague, best known for his
pioneer work with electric railways,
developed, in 1884, a constant-speed
industrial motor that was ideal for ap-
plication to individual machines, and it
soon surpassed the products of all of his
competitors. Moreover, it was the only
type approved for use on Edison’s light-
figure 10. Ball Electric Light Co.’s New York factory on Ninth Avenue at 27th
ing circuits, and Sprague became the
Street. (Source: Ball Electric Light Co. catalog.)
leader in the field of motor development
(Figure 9). The initial development and
marketing of his motor was located Wheeler Company, which manufac- er-Wheeler created an entire town, ap-
at the Bergmann plant on Avenue B, tured generators and motors for both propriately named Ampere, and the fac-
but component manufacturing and as- ac and dc systems. Crocker-Wheeler, tory was said to be the largest and most
sembly were dependent on the Edison founded by the partnership of Fran- technically advanced of the day.
Machine Works. After the move of the cis Crocker and Schuyler Wheeler
Edison companies to Schenectady was in 1888, was located at 39 Cortlandt
completed, Sprague leased space up- Street until space limitations forced
town in the Union Lead Works building a move of the factory to New Jersey.
on West 30th Street in January 1887. The most significant ac innovator after
He eventually moved his operations to Westinghouse, with a more extensive
New Jersey, as had Daft before him. product line than ac pioneer Thom-
The Sprague Electric Railway and Mo- son-Houston of Lynn, MA, (later the
tor Company was merged into the Edi- founding partner of General Electric),
son General Electric Company in 1889. Crocker-Wheeler claimed to have exhib-
ited more variations of equipment than
Ball Electric Light Co. Westinghouse at the 1893 Columbian s Meets FAA Specifications!
Color – Size – Shape!
Manhattan was also selected for the fac- Exposition in Chicago. – International Orange
tory of Ball Electric Light Co. of Toronto, That event is generally cited as the s Tested and approved by
Canada, to supply customers in the point of the victory of Westinghouse major power companies!
s Thousands still in service
United States. Ball offered motors and in the competition with Edison’s dc after 40 years
an extensive array of arc and incandes- proponents, but clearly Westinghouse s Universal attaching! Fits any
wire .1" to 1"!
cent lighting systems in North America was not alone in the promotion of ac s Installs in 5 minutes!
as well as internationally. Initially located systems, nor was the competition the s Withstands hail!
at 18 Cortlandt Street, a large factory simple two-party “clash of the Titans” s No maintenance! Does not
slip, oscillate, chafe, cause
was constructed at 281–289 Ninth Av- battle portrayed in virtually every his- electrolysis or harmonic
enue/400–416 West 27th Street, with torical treatment. As a point of fact, vibration.
s Ships in halves nested.
New York offices located at 404 West there were a number of players on
9, 12, 20, 24, 30, and 36" balls
27th Street (Figure 10). both sides of the ac versus dc dispute,
& special sizes available
and the issues were not so simple or as
Crocker-Wheeler clear-cut as the popular versions allege. Call now 573-796-3812
Lower Manhattan, however, remained The Crocker-Wheeler factory move was ext. 2001
the center for electrical companies completed by 1896, though lettering on Fax 573-796-3770
through the 1880s. After Daft and the huge new factory proclaimed the www.tanawiremarker.com
TANA WIRE MARKERS
Edison, the most significant pioneer Cortlandt Street address of its business
P.O. Box 370, California, MO 65018
to locate in that area was the Crocker- offices. Unlike the competition, Crock-

july/august 2023 634276_Tana.indd IEEE

1 power & energy magazine
23/03/13 10:3887
AM
 Uncertainties of Time the capital necessary to pursue develop- tance in locating ancient maps of Man-
In many instances, it is difficult to de- ment. A few develop practical hardware, hattan in the period under discussion.
scribe with certainty the businesses and the best of those compete for busi-
mentioned, for there is minimal in- ness. The field of competitors is then For Further Reading
formation on record. winnowed by finances, T. J. Blalock, “Ampere, New Jersey
That is especially true
of the smaller compa-
In many oppor tunity, ma rket
interest, and product
[History],” IEEE Power Energy Mag.,
vol. 9, no. 3, pp. 78–91, May/Jun. 2011,
nies that disappeared instances, quality until only a few doi: 10.1109/MPE.2011.940407.
or were absorbed into remain. Though the in- J. J. Cunningham, “Forgotten Pioneer:
larger entities. As in the companies novators mentioned Leo daft and the excelsior power company
case of the later myriad
automobile, aircraft,
and innovators here competed in New
York City, their ulti-
[History],” IEEE Power Energy Mag., vol.
16, no. 4, pp. 108–120, Jul./Aug. 2018,
and radio pioneers, the failed mate survival required doi: 10.1109/MPE.2018.2819038.
p&e
electrical innovators successful competition
economically
s aw a l l i a n c e s m a d e with companies located
and broken, equipment
after devising elsewhere. In arc light-
reused or rebuilt, and
facilities relocated—all workable
ing, the most significant
of those were the Brush Corrections
such changes were usu- Electric Co. of Cleve-
ally attributable to dis- schemes. land, OH; the Thomson- In two previous articles by Joseph J.
putes, patent litigation, Houston Company of Cunningham, “AC Network Centenni-
or financial distress. Furthermore, the Lynn, MA; and the Weston Electric Co. al” [1] in the March/April 2022 issue of
products varied substantially according of Newark, NJ. IEEE Power & Energy Magazine and
to customer request, technical evolution, Those companies with the finan- “Distributed Generation” [2] in the No-
competition, component availability, cial strength and the best product en- vember/December 2022 issue, under
and financial constraint. joyed success, but, eventually, all were “For Further Reading,” the book listed
In many instances, companies and acquired by larger companies with as the “St. Louis Electric Handbook”
innovators failed economically after greater resources and deeper mar- should be listed as the “New York Elec-
devising workable schemes. A primary ket penetration. The rare few, such as tric Handbook.” The same error occurs
source of data for this article was de- Crocker-Wheeler, remained indepen- in the photo captions for Figures 1, 2, 3,
scriptions, notices, and advertisements dent to become strong players in the and 6 in the “Distributed Generation”
in trade publications, such as Electri- field. Still, it was those with extensive article. The author regrets any confu-
cal World, which was the leading trade national or even international opera- sion these errors may have caused.
journal of the day. Another source was tions that became the leaders; in the
the surviving catalogs of the compa- United States, that was General Elec- For Further Reading
nies. It is difficult to ascertain the ac- tric and the Westinghouse Electric and New York Electric Handbook, Ameri-
curacy of promotional materials as to Manufacturing Company. Nonetheless, can Institute of Electrical Engineers,
the duration of the production and sale those overlooked (and now long forgot- St. Louis, MO, USA, Sep. 1904.
of a product and whether or not it sold ten) pioneer entrepreneurs and innova-
in significant numbers. The picture is tors that clustered in lower Manhattan References
further distorted by the frequent law- in the 1880s played a major and some- [1] J. J. Cunningham, “AC network cen-
suits, patent infringement accusations times a leading role in the launch of a tennial: Years of distribution networks
(both real and alleged), and company new industry. Though forged in com- [History],” IEEE Power Energy Mag.,
acquisitions. petition, their innovations advanced vol. 20, no. 2, pp. 64–73, Mar./Apr. 2022,
Innovation rarely comes from a sin- the United States to international doi: 10.1109/MPE.2021.3134345.
gle innovator at a single point in time, prominence in the electric light and [2] J. J. Cunningham, “Distributed gen-
much as that theme may make an in- power industry. eration in 1900?: How the Edison Co. of
teresting story. Rather, it occurs when New York met short-term needs [His-
available knowledge, market demand, Acknowledgment tory],” IEEE Power Energy Mag., vol.
material, and technical development The author would like to thank Mary 20, no. 6, pp. 82–89, Nov./Dec. 2022, doi:
all reach the point where a new step or Ann Hellrigel of the IEEE History Cen- 10.1109/MPE.2022.3199899.
technological direction is feasible. In ter for her generous assistance in deter- p&e
most instances, a number of informed mining the locations and details of the
people see the potential; some of those early Edison factories in New York City Digital Object Identifier 10.1109/MPE.2023.3273993
propose but fail to act, or they may lack and also Michael Wares for his assis- Date of current version: 21 June 2023

88 IEEE power & energy magazine july/august 2023

society news

meet the candidates

PES president-elect, secretary, and treasurer

B
BEGINNING IN AUGUST, ELECTIONS that I can provide the required stew- director; a Fellow of the IEEE, Royal
will be held for the positions of IEEE ardship of PES to properly serve its Society of Canada, and Canadian Acad-
Power & Energy Society (PES) presi- broad academic, industry, and world- emy of Engineering; and have received
dent-elect, secretary, and treasurer. wide membership. multiple awards and recognitions from
The candidates are as follows: I appreciate President Jessica Bian’s Waterloo and PES.
✔ president-elect: Claudio Cañizares inclusive, transparent, and generous lead- I have been a very active member of
and Farnoosh Rahmatian ership style, and thus, if honored by be- PES since 1986, contributing significantly
✔ secretary: Mazana Armstrong and ing elected PES presi- to its technical activi-
Ramakrishna Kappagantu dent, I plan to follow ties and holding techni-
✔ treasurer: Juan Carlos Montero a similar approach. I appreciate cal leadership positions
and Dean Sharafi Furthermore, besides President Jessica in multiple commit-
The successful candidates will serve facilitating and sup- tees, working groups,
for the term of 2023–2024. To learn porting all of the great Bian’s inclusive, and task forces. I now
more about the candidates before cast- ongoing work by PES play a leadership role
ing your ballot, read the biographies members and vol- transparent, in PES and IEEE as an
and candidate statements that follow. unteers, I’ll focus on and generous active member of the
enhancing the impact PES Governing Body
Candidates for PES and relevance of PES leadership style. and Executive Com-
President-Elect to the world’s net-zero mittee, IEEE Techni-
future for which the power grid will be cal Activities Board and Board of Direc-
Claudio Cañizares the backbone, as well as increasing the tors, and several associated committees.
University of Waterloo, growing PES relevance and leadership
Waterloo, ON, Canada role within the IEEE, properly reflect- Accomplishments
ing its size, for which I’ve been pushing I have held 52 PES and IEEE mem-
Candidate Statement as director. bership and leadership positions, in
I have unique ex p e - particular:
r ie n c e s a n d b r o a d Biography ✔ Member, Technical Activities
knowledge of PES and IEEE, given I have been at the University of Water- Board Nominations & Appoint-
my multiple successful activities and loo since 1993, where I am a University ments Committee, 2023–2024
leadership positions in my 37 years of of Waterloo professor, Hydro One chair, ✔ Member, Fellow Committee
being an active member and volunteer. and Waterloo Institute for Sustainable Strategic Advisory Working
Based on my open and transparent ap- Energy executive director. My highly Group, 2023
proach as PES leader, witnessed by cited research with industry and govern- ✔ Director and director-elect, Di-
many members and volunteers with ment partners has focused on relevant vision VII, 2021–2023
whom I’ve had the pleasure of collab- and practical aspects of power and ener- ✔ Member, Ad Hoc Committee to
orating, and on my recent experience gy systems in the context of markets and Coordinate Response to Climate
as IEEE division director, I believe grid-edge technologies, like microgrids. Change, 2022–2023
Digital Object Identifier 10.1109/MPE.2023.3274801
I am the IEEE Transactions on Smart ✔ Member, Ad Hoc Committee on
Date of current version: 21 June 2023 Grid editor in chief; IEEE Division VII Fellows Processes, 2022

july/august 2023 IEEE power & energy magazine 89

 ✔ Editor in chief, IEEE Transac- I have received 20 IEEE PES awards related challenges and achieve a more
tions on Smart Grid, 2020– and recognitions, in particular: resilient and sustainable energy future
present ✔ Best Paper Award, 2022 “for the benefit of humanity.”
✔ Chair, Electrification Magazine ✔ Technical Council Outstanding
Steering Committee, 2019–present Technical Report Award, 2020 Biography
✔ Past chair, chair, vice chair, and ✔ Technical Committee Service Dr. Rahmatian is a cofounder and pres-
secretary, Power System Dy- Award, 2019 ident of NuGrid Power Corp. He has
namic Performance Committee, ✔ Outstanding Power Engineering contributed to several techniques for
2013–2020 Educator Award, 2017 power system measurement and auto-
✔ Chair, Task Force “Microgrid ✔ Technical Committee Distin- mation over the past 30 years. He is a
Dynamic Modeling,” Power guished Service Award, 2017 professional engineer and a Fellow of
System Stability Subcommittee, ✔ IEEE Canada Electric Power IEEE for contributions to optical volt-
2018–today Medal, 2016 age and current sensors. He is a past
✔ Editor and lead, Smart Grid ✔ PowerTech Best Student Paper chair of the PES’s Technical Council,
Technical Activities Commit- Award, 2015 active at PES Power System Relaying
tee’s white paper “Microgrids: ✔ IEEE Fellow, 2007 and Control, as well as Power System
Utility Challenges and Opportu- ✔ Technical Council Outstanding Instrumentation and Measurements
nities,” 2018–2022 Technical Report Award, 2005. committees. He is also active in the In-
✔ Editor in chief, Proceedings ternational Council on Large Electrical
Special Issue “Electricity for Farnoosh Rahmatian Systems (CIGRE, Distinguished Mem-
All: Access to Electricity Is- NuGrid Power Corp, ber), International Electrotechnical
sues and Solutions for Energy- Vancouver, BC, Canada Commission, the Canadian Standards
Disadvantaged Communities,” Association, and the North American
2018–2019 Candidate Statement Synchrophasor Initiative. His present
✔ Technical Program chair, Inno- The global energy in- technical focus is on wideband optical
vative Smart Grid Technologies frastructure demands sensors, synchronized measurement
Latin America, 2016–2017 a greater level of resiliency and flex- systems, digital substations, integra-
✔ Member, Editorial Board of the ibility, and PES offers an ideal plat- tion challenges of distributed energy
Proceedings of the IEEE, 2016– form for embracing and addressing resources, high-speed measurement of
2021 this challenge. As a candidate for IEEE voltage and current, traveling-wave–
✔ Co-chair, Task Force “Microgrid PES president-elect, I am honored to based fault location, and grid resiliency
Stability Analysis and Model- have the opportunity to contribute to efforts. Rahmatian has over 100 techni-
ing,” Power System Stability this crucial mission. cal papers and 12 patents to his credit.
Subcommittee, 2014–2018 With three decades of involvement
✔ Chair, Task Force “Microgrid in various PES activities, I have wit- Accomplishments
Control,” Power System Sta- nessed firsthand the passion, expertise, I have served on the PES Governing
bility Controls Subcommittee, and mentorship shared among PES Board as vice-president of technical ac-
2010–2014 members. These core values epitomize tivities (2018 and 2019) and on the PES
✔ Chair and secretary, Power Sys- PES and make our membership a driv- Technical Council for 10 years (various
tems Stability Controls Subcom- ing force for serving our communities. leadership/officer roles including the
mittee, 2006–2011 My primary objective is to increase chair). For the past three decades, I have
✔ IEEE Fellow (2007), Senior member engagement in solving the been heavily involved in PES technical
Member (2000), Member (1991), greatest challenges of our time, includ- committees, chaired the Power System
and Student Member (1986) ing mitigating and adapting to climate Instrumentation and Measurements
✔ Chair, Task Force “Impact of In- change, while simultaneously devel- Committee, and have contributed to
dustry Restructuring on System oping members’ careers. We must technical standards and reports through
Dynamic Performance,” Power nurture young and innovative minds various PES technical committees, in-
System Stability Subcommittee, and foster collaborations with experi- cluding having chaired three working
2005–2010 enced professionals, both locally and groups. I established various process
✔ Chair, Voltage Stability Focus globally, to develop the right solutions improvements for the PES Technical
Group of the Power System Sta- for tomorrow. Council and contributed to reorganiz-
bility Subcommittee, 1997–2002 We must also cherish and leverage ing PES technical committees in the
✔ Secretary, Voltage Stability and the existing synergy between industry 2015–2016 timeframe. I have been ac-
Long-Term Stability Working and academia, one of the core strengths tive in the PES Industry Technical
Group, 1994–1997. of PES, to address power and energy- Support Leadership Committee for the

90 IEEE power & energy magazine july/august 2023

past four years, currently chairing the further contributing to the criticality of members. As IEEE PES vice president
PES Corporate Engagement Program. I the situation. Chapters (2018–2022), I led several im-
have also been active on the PES Long- In my position with a large North portant initiatives within PES Chapters
Range Planning Committee for several American utility, I see the challenges organization:
years, currently chairing Subcommittee that lie ahead for our industry and I be- ✔ Implementation of health track-
5 on Climate Change. lieve IEEE PES plays a major role in ing for professional and student
I have a strong track record for work- helping us work together to find solu- chapters to enable growth of
ing well and efficiently with all PES lead- tions. I am passionate about shaping high-performing chapters deliv-
ers/volunteers: a team-first approach. the future direction of IEEE PES and ering outstanding service to the
I have been a member of the IEEE I am enthusiastic about our visibility membership
Photonics Society, IEEE Instrumen- to the public and remaining relevant to ✔ Establishing student chapters
tation and Measurement Society, and the future generations. leadership organization in all
IEEE Standards Association. Cur- If elected as secretary, my goal is IEEE regions, mirroring the orga-
rently, I serve as the PES Technical to revive activities of the PES History nization of professional chapters
Council liaison to the CIGRE Tech- Committee, help reshape our IEEE ✔ Establishing the High-Perform-
nical Council and helped establish PES brand in view of the major changes ing Student Branch Chapter Pro-
the memorandum of understanding that are upon us, and strengthen IEEE gram and Outstanding Student
in place between IEEE (PES) and CI- PES’s position within the industry for Chapter Award, both providing
GRE. I also currently serve as the li- generations to come. financial assistance to student
aison between PES and the IEEE Sen- chapters
sors Council. Biography ✔ Annual student chapter chair
I am a Fellow of IEEE for my tech- Dr. Mazana Armstrong is the man- training was launched virtually
nical contributions. I have participated ager of the Transmission Stations En- in 2021 and in person in 2022 for
and presented at numerous IEEE and gineering Division at BC Hydro. She the first time in all IEEE regions.
PES conferences and panels over the has over 25 years of professional ex- Professional and student chapter
past 30 years. I have served as the perience in operations, maintenance, chair training is essential in en-
PES Technical Council’s Technical and design of high-voltage electric suring the health and longevity
Program coordinator for IEEE PES power systems, specifically electrical of PES chapters.
General Meetings 2015 through 2017, aspects of 69-kV to 500-kV transmis- ✔ Initiation of the PES Mentor-
managing the technical panels (~100) sion systems. Armstrong’s profession- ing Program by the PES Student
and the conference paper review pro- al contributions include standards de- Chapters Committee has been a
cess (>1,000). I have also served as a velopment addressing electrical safety major success. Student chapter ac-
reviewer for several IEEE and PES of the public, power utility workers, tivities and their growth support
journals and conferences. and facilities in close proximity of student retention and successful
electric power systems. transition of students to profes-
Candidates for PES Armstrong holds a degree in elec- sional members. Student chapters
Secretary trical engineering from the University are the key to the future of PES as
of Zagreb, Croatia, and an M.A.Sc. and a volunteer organization.
Mazana Armstrong Ph.D. in electrical engineering from My past accomplishments include
British Columbia Hydro, the University of British Columbia, the role of PES regional representa-
BC, Canada Canada. She is a registered profes- tive for the United States and Canada
sional engineer in British Columbia, and chairing the local organizing com-
Candidate Statement and a Senior Member of IEEE. Arm- mittee for the 2013 IEEE PES General
The power and energy strong has been an IEEE PES volunteer Meeting in Vancouver, BC, Canada. In
industry is facing sig- for over 20 years. Most recently, she 2011, I was the IEEE Vancouver sec-
nificant challenges to meet emerging served as IEEE PES vice president for tion chair and the centennial commit-
needs for electrification and reduction Chapters. Armstrong is an IEEE PES tee chair to mark 100 years of IEEE in
in carbon emissions. At the same time, Distinguished Lecturer and a Member Vancouver. Efforts included a signifi-
we are experiencing an unprecedented of IEEE Standards Association. cant public outreach, with the City of
increase in the frequency and severity Vancouver declaring the Engineering
of the climate change-related weather Accomplishments Week and unveiling of the IEEE monu-
events impacting the power system in- IEEE PES has over 800 professional ment at Science World. We published
frastructure. Supply chain disruptions and student chapters worldwide, de- 100 years of the Vancouver section
and workforce decline triggered by the livering technical presentations and history book for the occasion, raising
pandemic and political conflicts are networking events to over 40,000 public awareness of the IEEE brand.

july/august 2023 IEEE power & energy magazine 91

 Prior to that, I held the roles of section Biography research, and academia with
treasurer, secretary, and vice chair. I Ramakrishna Kappagantu graduated policy makers, regulators and
actively participate with IEEE PES in Electrical from Malaviya National government agencies to discuss
technical committees in development Institute of Technology, Jaipur, India, challenges/opportunities with all
of technical standards. did an M.A. in automation and control stake holders on local needs and
from the Post Graduate School, Jawa- emerging technologies. These
Ramakrishna Kappagantu harial Nehru Technical University, Hy- workshops triggered signing
Eficaa Ensmart Solu- derabad, India, and obtained a Ph.D. five PES corporate partnership
tions Private Limited, (Electrical) from the National Institute agreements ensuring sustained
Telangana, India of Technology, Tiruchirappalli, India. technical activities and member-
With over 39 years of leadership/ ship growth.
Candidate Statement managerial experience in the Indian ✔ As member at large for PES
The secretary’s key power sector (i.e; National Thermal philanthropic initiatives, stream-
responsibility is to work with the Power Corporation and POWERGRID), lined PES funding pattern and
PES president, staff, and other lead- currently Kappagantu is chief techni- selection of smart village proj-
ers to ensure a smooth order of busi- cal advisor at Eficaa EnSmart Solutions ects. Introduced engagement of
ness and maintain PES governance Private Limited for Technical, Stra- PES students and young profes-
documents at all levels clear, specific, tegic, and New Initiatives. He earlier sionals from local chapters for in-
and consistent. made significant contributions toward ternships, academic projects, and
Having served as member of IEEE management of 55 Gigawatt Southern entrepreneurship opportunities
Board of Directors, Member and Regional Grid, its complex real-time in IEEE smart village projects.
Geographic Activities Board, Re- operations, power markets, supervi- ✔ As PES R10 representative, in-
gion10 (R10) Direc- sory control and data troduced bi-weekly review meet-
tor, PES Governing The secretary’s key acquisition-energy ings and new volunteer roles in
Board, Member and management system, the five zones of PES R10 for
Geographic Activi- responsibility is to and smart grid devel- member development and tech-
ties chair of Member
Engagement and Life
work with the PES opment in India.
Actively volunteer-
nical activities coordination that
engage chapter leads and ensure
Cycle Com m ittee, president, staff, ing for over 30 years member satisfaction.
and in other leader- in IEEE and PES, he ✔ As R10 director, rejuvenated R10
ship roles, I have an and other leaders. served many leader- young professionals and women
understanding on the ship roles, namely in engineering affinity groups
breadth of IEEE. Having responsibly IEEE board member and delegate from by classifying regional activi-
run R10 and other meetings, I under- 2015 to 2016 as R10 director, PES Gov- ties into zones, starting off self-
stand the advance work needed to erning Board, and Member and Geo- sustainable events like the Hard-
construct an agenda, develop and pro- graphic Activities boards. Currently Tech Summit, SYWL (student,
vide supporting material, read and act Kappagantu is PES R10 representative young professional, women in
on governance documents, and ensure and serving on the IEEE Governance engineering, life member) Con-
proper documents maintenance. I have Committee, IEEE Service Awards, gress. Introduced young profes-
significant R10 experience in keeping and Member and Geographic Activi- sional and women in engineering
governance documents current and up ties Awards. tracks in all R10 flagship events.
to date when necessary. I currently An eminent speaker, Kappagantu ✔ Created an Ad Hoc in R10 to as-
serve on the IEEE Governance Com- is published in reputed journals, con- sess requirements and needs of
mittee in 2023–2024. ferences, and has steered many IEEE industry members, young profes-
I work well with staff and believe international conferences and PES sionals, and graduate students,
that a strong partnership between staff workshops. with focus on entrepreneurship,
and volunteers can get work done ef- innovation, internships, and skill
ficiently and effectively. As secretary, Accomplishments development.
I will work with the PES Governing My major accomplishments in PES and ✔ Sustained R10 membership
Board and staff to place appropriate IEEE include: growth; best in IEEE regions
items on the board agenda. Addition- ✔ As PES member at large, spear- is an example of my volunteer
ally, I will provide overall supervision headed in R10, PES Global leadership efforts. Introduced
of keeping meeting records, activities, Workshops for member devel- regional member benefits, like
and membership for submission to the opment. Brought together mem- member medical insurance (In-
PES Governing Board. bers, nonmembers, industry, dia), membership dues payment

92 IEEE power & energy magazine july/august 2023

 in local currency, and discount- growth with the support of our vol- ✔ IEEE PES Central America Chap-
ed entry to Visvesvaraya Tech- unteers worldwide. IEEE PES ac- ters representative 2011–2015
nological and Birla Museums. complishes great things through ✔ IEEE PES Costa Rica Outstand-
Helped council and section their volunteers, and we should pro- ing Engineer Award 2011
leadership to build membership vide them the tools to make their ac- ✔ IEEE PES Costa Rica Chapter
in China. tivities easier for them. chair 2007–2008
✔ Mandated review and revision of ✔ IEEE Costa Rica Section vice
section/council/region govern- Biography chair and other board positions.
ing documents across R10. Juan Carlos Montero is the current
✔ My industry experience and clas- IEEE PES treasurer and the former Dean Sharafi
sic interpersonal relations helped IEEE PES vice president of Member- Australian Energy Mar-
converting IEEE strategies into ship and Image. He has previously ket Operator, Perth,
tangible and tactical actions, like held several other volunteer leader- WA, Australia
coordination with local sections/ ship roles within PES at the local
chapters to kick off IEEE/PES and international levels. He currently Candidate Statement
Smart City Workshop Series, is the IEEE CAPANA council chair. Dea r members of
Global Sister Society Agree- He works in the Costa Rican Power IEEE PES,
ments’ and joint awards with na- System Operator and has more than I am honored to present my candidacy
tional societies awards’ coordina- 20 years’ experience at his company. He for a position on the governing board of
tion, IEEE-eta kappa nu (HKN) is currently the electrical operational the IEEE PES. With over three decades
new chapter installations, etc. planning coordinator at the Costa Ri- of experience in the power and energy
can National Power Control Center. industry and a deep understanding of the
Candidates for PES He also has been part-time professor latest trends and challenges facing our
Treasurer at the University of Costa Rica for field, I am confident that I can make
more than 10 years. Mr. Montero re- valuable contributions to the society.
Juan Carlos Montero ceived the Bachelor and Licentiate de- If elected, I will support PES’s
ICE Operation a nd grees on Electrical Engineering from mission to advance the knowledge and
Control Division of the the University of Costa Rica. He is an expertise in the power and energy sec-
Costa Rican Electrical IEEE Senior Member. tor. Working diligently to strengthen
System (DOCSE) our society’s connections with indus-
Accomplishments try and academic communities, I will
Candidate Statement Mr. Montero has participated on sev- promote sustainability, innovation,
I am Juan Carlos Montero and I work eral IEEE and IEEE PES roles on an and collaboration, and ensure that
at the System Operator in Costa Rica. international level: the society remains at the forefront of
From my homeland, I have seen the ✔ Current IEEE PES Treasurer technological advancement. I will also
value of IEEE PES as a global orga- 2022–2023 foster diversity, equity, and inclusion
nization, and I am proud to be part of ✔ IEEE chair 2022–2023 Central and work actively to create a welcom-
a great community. For the last two America and Panama Council ing environment for members from all
years, I have been working in the IEEE ✔ IEEE elected chair 2020–2021 backgrounds, and to ensure that di-
PES treasurer position, looking to pro- Central America and Panama verse perspectives are represented in
mote a use of our community with a Council all decision-making processes.
global focus and following the IEEE ✔ IEEE spokesperson on Global Thank you for considering my can-
PES Governing Board vision. Power System Transformation didacy. If elected, I promise to work
I have been an active IEEE PES Consortium hard to uphold the values and mission
Governing Board member for seven ✔ IEEE PES vice president Mem- of IEEE PES and to serve our commu-
years, giving me the opportunity to bership and Image 2016–2020 nity with integrity and dedication.
participate in the identification of the ✔ IEEE PES Long-Range Planning
hot topics for IEEE PES and the energy Committee member 2014–2020 Biography
industry. We should promote IEEE ✔ IEEE PES Power System Opera- Dean Sharafi is heading up the Sys-
PES as global organization so our tion, Planning, and Economics tem Design and Transfor mation
members and volunteers can continue Committee member Group of the Australian Energy Mar-
creating amazing technical activities ✔ IEEE PES Nominations and Ap- ket Operator. Sharafi holds a degree
that improve our life. pointments Committee member in applied physics, a degree in elec-
If elected as IEEE PES treasur- ✔ IEEE PES Social Media Com- trical engineering, and a degree in
er, I will continue working to seek mittee chair 2012–2015 business management. He has around

july/august 2023 IEEE power & energy magazine 93

 30 years of experience in power sys- Accomplishments Furthermore, I have been active on
tem engineering, including power system I have contributed to PES in differ- the technical activities of PES, contribut-
protection, HV systems, asset manage- ent roles, performing as chair of the ing to white papers and podcasts. I have
ment, and power system and electricity Western Australian Chapter, chapter presented PES globally, leading to im-
market operation. representative for Australia and New portant agreements, such as signing of
He is a member of Australian In- Zealand, chair of the Scholarship corporate membership programs with or-
stitute of Management, CIGRE, Engi- Plus initiative from 2007 to 2017; ganizations on behalf of PES. I have con-
neers Australia, and a Senior Member and serving on the Governing Board tributed to identification and selection of
IEEE. Sharafi has also been a ses- as the region representative for Asia distinguished lecturers for the IEEE PES
sional academic and actively involved Pacific from 2017 to 2022. I have Distinguished Lecturer program.
with IEEE PES initiatives and CIGRE also been the chair of PES confer- Cooperating with and attending the
Working Groups over the last decade ences in Region 10, supporting these editorial board of Power & Energy
and has served as a member of the events and ensuring they are suc- Magazine, I have served as the guest
Governing Board of IEEE PES from cessful and a foundation for mem- editor for September/2021 October of
2017 to 2022. bership growth in the region. I have Power & Energy Magazine, bringing
Sharafi has published many papers attended most of these events and the Australian perspective on energy
on power system protection, condition presented as a Keynote speaker or transition and renewable energy inte-
monitoring, asset management, and a panelist and have supported them gration. I am also a regular contribu-
power system operations. with setting up international advisory tor to the magazine on different topics
Sharafi is also the author of his committees and finding speakers related to our industry.
p&e
memoir, The Unwilling Revolutionary. from the industry.

Now Open! Registration For the

2023 IEEE PES General Meeting.

Orlando, Florida | 16–20 July 2023

The IEEE PES General Meeting is the premier global technical conference for the electric power and
energy community, attracting over 3,500 attendees from more than 70 countries from all over the world.

Digital Object Identifier 10.1109/MPE.2023.3279470 pes-gm.org

94 IEEE power & energy magazine july/august 2023

obituary

in memoriam
Hyde M. Merrill

H
HYDE MCCUNE MERRILL WAS
born in 1943 and passed away peace-
He was a
fully in his home in Utah on 7 Decem- distinguished
ber 2022, surrounded by his loving
daughters. Dr. Merrill earned degrees alumnus of the
in mathematics and electrical engi-
neering from the University of Utah
University of
and electrical engineering from MIT. Utah Electrical
He was a distinguished alumnus of the
University of Utah Electrical Engineer- Engineering
ing Department. Dr. Merrill was a reg-
istered professional engineer in New
Department.
York State and a Fellow of the IEEE
“for contributions to decision analysis Weeks before his death, he delivered a
considering conflicting objectives and plenary session at the North American
risk in electric power systems.” He was Power Symposium.
Hyde M. Merrill
active on several IEEE Power & En- Dr. Merrill was the author of more
ergy Society (PES) committees, and than 40 technical publications and nu-
he chaired the 1995 Power Industry to provide advanced risk, engineering, merous articles. Dr. Merrill was also a
Computer Applications (PICA) Con- and economic analyses for participants history buff with a near-photographic
ference and chaired the PICA Policy in modern energy markets. Dr. Mer- memory as well as an avid reader and a
Committee for four years. rill was an adjunct professor at Rens- consummate storyteller. He served for
During his career, he worked at selaer Polytechnic Institute and later two years as the associate editor of the
Merrill Energy, LLC, which he founded returned to the University of Utah as “History” column for IEEE Power &
Digital Object Identifier 10.1109/MPE.2023.3269544
an adjunct in the Merrill Engineering Energy Magazine.
p&e
Date of current version: 21 June 2023 Building, named after his grandfather.

july/august 2023 IEEE power & energy magazine 95

 calendar

PES meetings
for more information, www.ieee-pes.org

T
T H E I E E E P OW E R & E N E R G Y November 2023 January 2024
Society’s (PES’s) website (http://www. IEEE PES Innovative Smart Grid Tech- I EEE PES 2024 Joint Technical
ieee-pes.org) features a meetings section, nologies Conference Latin America Committee Meeting (JTCM 2024),
which includes calls for papers and ad- (ISGT LA 2023), 6–9 November, San 9–13 January, New Orleans, LA, USA,
ditional information about each of the Juan, Puerto Rico, contact Alex Nas- contact Dan Sabin, [email protected],
PES-sponsored meetings. Please check sif, [email protected], https://ieee-isgt https://pestechnical.org/
the conference website for the most cur- -latam.org
rent information. IEEE Electrical Energy Storage
IEEE PES/IAS PowerAfrica Application and Technologies Con-
July 2023 Conference (PowerAfrica 2023), ference (EESAT 2024), 29–30 Janu-
IEEE PES General Meeting (GM 2023), 6–10 N ove m b e r, M a r r a k e c h , Mo- ary, San Diego, CA, USA, contact David
16–20 July, Orlando, FL, USA, contact rocco, contact Abdelbari Redouane, Rosewater, [email protected], https://
Roseanne Jones, roseanne.jones@ieee. [email protected], https://ieee cmte.ieee.org/pes-eesat/
org, https://pes-gm.org/ -powerafrica.org/
February 2024
IEEE International Future Energy IEEE PES Innovative Smart Grid IEEE PES Innovative Smart Grid
Challenge (IFEC 2023), 26–28 July, Technologies Conference Asia (ISGT Technologies (ISGT 2024), 19–22 Feb-
Hannover, Germany, contact Jens Friebe, Asia 2023), 21–24 November, Auckland, ruary, Washington, DC, USA, contact
[email protected], http://ener New Zealand, contact Nirmal Nair, Kathy Heilman, [email protected],
gychallenge.weebly.com/ [email protected], https://ieee-isgt https://ieee-isgt.org/
-asia.org/
August 2023 May 2024
IEEE Electric Ship Technologies Sym- IEEE Sustainable Power and Energy IEEE PES Transmission and Distri-
posium (ESTS 2023), 1–4 August, Conference (iSPEC 2023), 29–30 bution Conference and Exposition
Arlington, VA, USA, contact Julie Chalfant, November, Chongqing, China, contact (T&D 2024), 6–9 May, New Orleans,
[email protected], https://ests21.mit.edu/ Min Liu, [email protected], http://ieee LA, USA, contact Carl Segneri, carlsegner@
-spec.csee.org.cn/2023/ sbcglobal.net, https://ieeet-d.org/
September 2023
IEEE International Smart Cities Con- IEEE Transportation Electrification July 2024
ference (ICS2 2023), 24–27 September, Conference and Expo Asia-Pacific IEEE PES General Meeting (GM
Bucharest, Romania, contact George (ITEC Asia-Pacific 2023), 28 Novem- 2024), 21–25 July, Seattle, WA, USA,
Cristian Lazaroiu, clazaroiu@yahoo, ber–1 December, Chiang Mai, China, contact Roseanne Jones, roseanne.
https://attend.ieee.org/isc-2023/ contact [email protected], https:// [email protected]
itec-ap2023.com/
October 2023 For more information on additional
IEEE PES Innovative Smart Grid December 2023 technical committee meetings, webi-
Technologies Europe (ISGT Europe IEEE PES Asia-Pacific Power and nars, and events, please visit our IEEE
2023), 23–26 October, Grenoble, France, Energy Engineering Conference PES calendar: https://www.ieee-pes.
contact Bertrand Raison, bertrand. (APPEEC 2023), 6–9 December, Chiang org/meetings-and-conferences/conference
[email protected], https:// Mai, Thailand, contact Praditpong Suk- -calendar.
p&e
ieee-isgt-europe.org sirithawornkul, praditpong.suksiritha
Digital Object Identifier 10.1109/MPE.2023.3269547
[email protected], https://
Date of current version: 21 June 2023 ieee-appeec.org/

96 IEEE power & energy magazine july/august 2023

Join the Conversation!
At an Upcoming IEEE Power
& Energy Society Event
Check out the PES Events Calendar
www.ieee-pes.org/pesevents

Digital Object Identifier 10.1109/MPE.2023.3279508

 in my view (continued from p. 100)

In addition, while the Electricity Di- needed to ensure that consumers can quirements envisaged on time frames for
rective demanded large suppliers to offer truly become active participants in elec- grid connections and on the burdensome-
these innovative contracts to consum- tricity markets. There are at least five ness of administrative procedures are
ers, the reality is that in most countries areas where European and national pol- quite vague. Clearer requirements would
it has been up to new market entrants to icymakers should focus their attention. help in making sure that consumers truly
voluntarily offer them, at least in those First, the latest electricity market de- enjoy the rights that are granted to them
countries where they are a novelty. The sign review has not yet been transposed in legislation. The European Commission
dynamic electricity price contract in in most European member states, despite has proposed to accelerate permitting
Belgium offered by ENGIE is a notable a December 2020 deadline. While it is procedures for solar panels by setting a
exception to this trend. true that the COVID-19 pandemic and deadline of one month, but the measure
This directive also allowed consum- the ongoing energy price crisis disrupted is only temporary. This prescriptive,
ers to participate in all electricity mar- the work of lawmakers and pushed them outcome-based approach should become
kets to provide demand-side flexibility to deprioritize the transposition of Euro- the standard in European policymaking.
to the system. But, again, the European pean legislation, it is also true that more Fourth, in many European coun-
association for digital and decentralized demand-side flexibility would have in tries, electricity grids are a bottleneck
energy solutions (Smart Energy Europe, part contributed to keeping electricity to the deployment of solar panels. This
or SmartEn) reported in 2022 that this prices under control. This situation was problem is more of an issue for large re-
is unfortunately not yet the case in most recognized by the European Commis- newable energy projects, but in many
European countries. And even in those sion in its toolbox released in October cases, as explained earlier, it also affects
countries where demand-side flexibility 2021 to support member states’ efforts rooftop photovoltaic panels. Although in
can access multiple electricity markets, to tackle high energy prices. In addition, the long term it is likely that distribution
often it is only industrial customers who to address the possible worsening of the grids will need to be expanded, the pro-
can access, while aggregated house- energy price crisis, in autumn 2022 the curement of flexibility at the distribution
holds’ loads cannot yet do so. European Commission approved a bind- level can mitigate existing issues at least
Lastly, but most importantly, con- ing target to reduce electricity demand at in the short term. SmartEn reports that
sumers are only able to make informed peak times by 5%, which highlights the only operators in the United Kingdom
choices in electricity markets if they re- importance of demand-side flexibility. and in The Netherlands procure flexibili-
ceive information that they can under- Second, a thorough review of ad- ty from their customers at the distribution
stand. Article 10 of the Electricity Direc- ministrative requirements for installing level in a systematic way, while there are
tive granted consumers the right to have rooftop solar panels is way overdue. Over some trials ongoing in another handful of
access to a summary of the key contrac- the past decades, national and local poli- countries. Energy regulators across Eu-
tual conditions written in concise and cymakers have put in place regulations rope should reform the existing remuner-
simple language. But surveys carried out aiming to achieve policy goals that are ation mechanisms to incentivize flex-
in several European countries hint that now conflicting with the goal of tackling ible procurement from their customers
the information provided to consumers is climate change. On the one hand, there by distribution system operators.
still far too complex, which leads to a far are regulations striving to protect histori- Lastly, even if, since well before the
too limited understanding of electricity cal and natural heritages and city permits publication of the Clean Energy Pack-
markets by consumers. A survey carried are often needed to be able to install pho- age in 2016, the mantra of the European
out in 2021 by the Norwegian consumer tovoltaic panels on buildings’ rooftops. Commission has been that the energy
organization Forbrukerrådet shows that On the other hand, there are regulations system should be designed around con-
47% of Norwegian consumers do not protecting individual rights in collective sumers, evidence shows that existing
know whether their contracts are on a properties, which often lead to decision- regulations are not effective in engag-
dynamic or a fixed electricity price tariff. making rules in multiunit buildings that ing them. This situation highlights that
Similarly, a survey carried out by the Bel- are not conducive to decisions being there is a need for further investigation
gian Energy Regulator in the same year made. These two goals now conflict with of consumers’ understanding, behav-
also shows that half of the Belgian con- the rapid rolling out of a large number ior, and preferences when it comes to
sumers do not know whether they have a of solar panels on European rooftops. energy, and that there is a need for reg-
fixed or a variable electricity price tariff. National and local policymakers should ulations designed around this insight.
review administrative requirements to Households’ contributions will be
How Can These Hurdles find a better balance between these con- fundamental to achieving a fossil-free
Be Overcome? flicting policy goals. electricity system, which is now more
The question now is how these issues Third, European legislation is prob- urgent than ever.
can be addressed and what steps are ably not sufficiently prescriptive, as re- p&e

98 IEEE power & energy magazine july/august 2023

advertisers index
The Advertisers Index contained in this issue is compiled as a service to our readers and advertisers: The
publisher is not liable for errors or omissions although every effort is made to ensure its accuracy. Be sure
to let our advertisers know you found them through IEEE Power & Energy Magazine.

Company page# URL Phone

ASPEN, Inc. CVR4 www.aspeninc.com +1 650 347 3997

DIgSILENT GmbH 3 www.digsilent.de/powerfactory

EasyPower LLC 11 www.EasyPower.com/demo

Omicron Energy 15 omicronenergy.com/cibano500

Powertech Labs, Inc. 13 www.dsatools.com

PowerWorld 6 www.powerworld.com +1 217 384 6330

PSCAD™ 7 pscad.com

RTDS Technologies, Inc. 9 www.rtds.com/webinars

S&C Electric Company 5 sandc.com/reliability20

SKM Systems Analysis, Inc. CVR2 www.skm.com +1 800 500 4SKM

Tana Wire Markers 87 www.tanawiremarker.com +1 573 796 3812

445 Hoes Lane, Piscataway, NJ 08854

IEEE power & energy magazine representative

Beverly Grimme
Naylor Association Solutions
direct: +1 352 333 3367, cell: +1 904 881 0862, fax: +1 703 790 9199
[email protected]

Digital Object Identifier 10.1109/MPE.2023.3279148

july/august 2023 IEEE power & energy magazine 99

 in my view
Jaume Loffredo

consumer empowerment
lessons from the European Union

T
THE KEY PILLAR OF THE EURO- like Estonia, Poland, Romania, and sumer organization Consumentenbond
pean Union (EU) carbon policy is to Bulgaria, the time frame for obtaining revealed that of 30 suppliers surveyed,
achieve carbon neutrality on the conti- a grid connection is often quite long, 14 pay consumers less than 70% of
nent by 2050. The two enablers to meet reportedly because of an insufficient electricity wholesale prices and six of
are the deployment of new wind and so- grid capacity due to a them pay less than 15%
lar capacity to replace fossil fuel power lack of investments. In of wholesale prices.
generation and the electrification of end Bulgaria, consumer or- The key The Electricity Di-
uses that today are dependent on fossil
fuels, such as heating and transport.
ganizations report that
the time frame for a grid
pillar of the rective also allowed
consumers to have ac-
As the sun does not shine and the connection can be up to European cess to offers incentiv-
wind does not blow at all times, the re- three years. izing them to use energy
newable-based power system of the fu- In addition, while the Union carbon in a flexible way, so that
ture will increasingly require the active
participation of consumers through de-
EU Electricity Directive
says that active custom-
policy is they can contribute to the
resilience of the electric-
mand-side flexibility. The International ers should not be sub- to achieve ity system. To this end,
Energy Agency forecasts that, by far, the ject to disproportionate the Electricity Directive
biggest demand-side flexibility potential administrative require- carbon granted consumers with
will need to come from buildings and
transport, with industry coming as the
ments, unfortunately,
consumers in countries
neutrality on a smart meter the right to
sign up for dynamic elec-
next important option. like Malta, Italy, and the continent tricity price contracts,
As the European Commission is cur- Germany need to submit which are contracts fore-
rently considering changes to the func- applications for multiple by 2050. seeing that the price paid
tioning of the EU electricity markets, this authorizations to differ- by consumers is directly
is the ideal time to understand whether ent bodies (municipalities, distribution linked to hourly prices in day-ahead
the current legislation adequately em- system operators, regulators) to be able wholesale electricity markets.
powers them to become active partici- to lawfully install a photovoltaic panel. Despite that, the Council of Europe-
pants in these markets. This requirement discourages many con- an Energy Regulators and the Agency
sumers from even considering switching for the Cooperation of Energy Regula-
Status of Consumer to renewables, due to the excessive com- tors reported in 2022 that these offers
Participation in EU Power plexity of the process. were available only in 11 countries
Markets and Its Hurdles Even when consumers overcome all across Europe in 2021. Since the publi-
Article 15 of the Electricity Directive of these hurdles, in many cases they cation of this report, dynamic electric-
2019/944 grants consumers the right receive a very low level of remunera- ity price offers have been discontinued
to sell the electricity that they generate tion for the electricity they feed into the in France because, due to the recent
and to have their photovoltaic panels grid, despite the fact that the EU Re- increase in electricity prices, these are
connected to the grid within a reason- newable Energy Directive 2018/2001 not competitive with the regulated tar-
able time frame. However, in countries grants them the right to receive pay- iff offered by Electricité de France.
ments reflecting the electricity market
Digital Object Identifier 10.1109/MPE.2023.3269548
value. Public research done in 2022
Date of current version: 21 June 2023 in The Netherlands by the Dutch con- (continued on p. 98)

100 IEEE power & energy magazine july/august 2023

 Sustainable Solutions

IEEE Smart Village integrates

sustainable electricity, education, and
entrepreneurial solutions to empower
off-grid communities. Join us!

Pledge a recurring monthly micro-

payment of $20/month. 1,000
LADAKH, INDIA engineers will provide power to a
remote region.

Volunteer with IEEE Smart Village.

Power a Village, Empower a Community

For more information, visit ieee-smart-village.org

IEEE SMART VILLAGE IS AN IEEE FOUNDATION PRIORITY INITIATIVE
Digital Object Identifier 10.1109/MPE.2023.3279509