Navigant Research Blog

Promoting Sustainable Energy Systems on European Islands

— April 3, 2018

The EU has around 2,400 inhabited islands. EU islands vary substantially in size, population, natural conditions, and economic activity, but share common energy systems characteristics such as strong dependency on imported fossil fuels, insufficient interconnections, high energy prices, and massive unexploited renewable energy sources (RES) potential. Exploiting this RES potential will not only help decarbonise EU islands but also significantly decrease the cost of energy supplies.

Islands and the Energy Transition

The EU energy policy agenda has aimed at addressing these issues since the early 1990s. On May 18, 2017, the Clean Energy for EU Islands initiative was signed by the European Commission and Energy Ministers of Croatia, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Malta, Portugal, Spain, and Sweden. The initiative intends to assist islands with the energy transition. The European Commissioner for Climate Action and Energy, Miguel Arias Cañete, revealed the Commission’s plan to decarbonise 1,000 islands by 2030.

Ecofys, a Navigant company, has provided a front-running analysis of the energy landscape of EU islands to support the European Commission’s Directorate-General for Energy in this effort. The project, Islands and Energy Islands in the EU Energy System, was realised under ASSET’s framework program Energy Systems in Support of Policy. With this project, Ecofys, a Navigant company, and partners presented the energy landscape in non-connected islands, proposed categorisation of islands, and recommended policy actions towards an effective energy transition in islands.

Action Plans and Regulatory Measures Go Hand in Hand

An island’s sustainable energy action plans could become the core of its regulatory measures towards decarbonisation and lowering the cost of energy supplies. These plans should be supported by key performance indicators, to allow the monitoring of the progress of island decarbonisation by islands’ authorities and on the EU level to be in line with the Energy Union principles. Other key regulatory measures include addressing monopolistic practices in island energy markets and considering specific support schemes to incentivise green and local/community investments.

Cooperation between island authorities and investors is necessary to further decrease investment time and cost. The Ecofys and Navigant team proposes the creation of one-stop-shops in islands for island authorities to permit green investments and to facilitate an open discussion with local communities on the benefits of such investments.

On the funding side, Ecofys, a Navigant company, proposed twofold investment support. The team believes it is necessary to pool small-scale investments into clusters to use the economies of scale, and to create micro-loans for activating small-scale investments.

Advanced Islands Should Practice Knowledge Sharing

Knowledge and experience transfer between more advanced islands (e.g., Bornholm, Gotland, Tilos, el Hierno, and others) and those still struggling with the energy transition is another important element of islands’ decarbonisation. Exchange of experience should be supported by social awareness and engagement campaigns, and open discussion within the environmental impact assessment procedures. Technical training to meet the growing demand for green jobs in islands is also needed.

The solutions proposed by Ecofys will be further discussed and integrated into the Directorate – General for Energy actions aimed at supporting islands via the Secretariat of EU energy islands, Horizon calls for proposals (H2020 call – Decarbonising energy systems of geographical Islands and H2020 call – European Islands Facility: Unlock financing for energy transitions and supporting islands to develop investment concepts), and actions aimed at limiting energy poverty.

Decarbonising islands will bring down the cost of energy for island communities. In that way, islands will meet one of the key pillars of the European Commission’s Clean Energy Package for all Europeans proposals—providing a fair deal for consumers.

 

Value of Industrial Flexibility in Europe

— September 5, 2017

The Clean Energy for All Europeans proposal (the so-called Winter Package) is a policy package that aims to meet climate objectives and ensure economic growth. This package prioritizes energy efficiency and renewable energies while fostering organized electricity markets to realize cost savings. It also empowers consumers, strengthens their rights, and gives them an active role in energy markets. The Winter Package emphasizes variable renewable sources and shifts the design of the European power systems toward increased interactivity and complexity.

Industrial demand flexibility can facilitate the cost-effective integration of more renewable energy sources (RES) in the EU market and assist with increasing costs of electricity that hamper the competitiveness of the EU industry. In some cases, industrial customers can provide flexibility much more cost-effectively than supply-side resources. However, industrial customers with flexibility potential must have access to all value streams; different industrial loads can provide many different services. For example, demand-side management (DSM) is always a voluntary service, which distinguishes it from curtailment.

Industrial Demand Flexibility Business Models

There are several business models to deal with demand flexibility that are in line with proposals under the Winter Package. Savings in energy bills are possible through flexibility in responding to dynamic energy prices in day-ahead markets and time-dependent cost-reflective network tariffs, alone or in combination with onsite renewable generation. Additional revenue can be obtained via market participation in system services, such as reserves and balancing, ancillary services, and interruptible contracts.

Energy consumers should be able to access the market directly or work with aggregators. Examples from Australia and New Zealand show that the average capacity of an industrial customer is roughly 0.5 MW, and these are not able to provide flexibility options to the system themselves. Therefore, the role of aggregators is key.

The procurement of balancing capacity and ancillary services close to real time, rather than in big chunks, allows the availability of flexibility to be predicted. Today, most flexibility is sold in balancing markets, but not every industrial process is fit to respond in 15-minute intervals. Still, industrial customers are interested in participating in these markets. Examples from the United States, Australia, and New Zealand indicate industrial customers offer to free up load to provide system services at fair prices.

It is important to set the energy-only market right in all member states and to make the system more flexible. To facilitate flexibility services, power markets need to become more dynamic. Renewable energy will have increasing impacts on power prices. Dynamic pricing would give flexibility a value.

Better engagement of consumers in the energy market should be enabled as soon as possible—the Winter Package provides additional policy and regulatory support in this respect. However, the implementation of policies in member states is often lagging. Regional and multinational approaches can help (e.g., opening of several markets to efficiency/RES development measures).

Value of Flexibility

Flexibility is gaining importance in the changing power markets. Various policy measures should be implemented to stimulate the exploitation of industrial flexibility operations:

  • Introduce dynamic pricing to capture the full value of flexibility.
  • Allow participation of demand in day-ahead, intra-day, and balancing markets, including through aggregation.
  • Design cost-reflective network tariffs aligned with periods of maximum network utilization.
  • Avoid other regulated charges and take non-electricity costs out of the tariff.
  • Make RES responsible for imbalances (exceptions for small-scale RES), move toward efficient imbalance pricing systems, and allow aggregation and imbalance compensation.
  • Abandon net metering policies and allow self-generation for onsite variable renewable electricity.
  • Adopt high level principles-based harmonization of flexibility mechanisms across the EU.

Experience with other policies (e.g., energy efficiency policies for industry) shows that accurate policy and market design measures may encourage industrial customers to be more cost-effective.

 

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