A Market Design that Empowers Consumers?

The European Commission’s winter package on energy market design is expected to deliver on key promises of the Energy Union, a central one of them being the empowerment of energy consumers. But what exactly does this mean, and what should the new proposals achieve?

A precondition for consumer empowerment is giving them a choice: Citizens, commercial and industrial consumers should be able to opt for the energy services they prefer, the services they wish to sell, and the service provider they wish to work with. This includes the choice to valorise the flexibility of their devices and processes on the market, the choice to self-generate electricity, or the choice for real-time electricity pricing to adjust parts of their consumption – automated or not – to the variability on the market and save costs. It also includes the choice to work with their energy supplier as well as an independent energy service provider such as a demand response aggregator for different services.

Enabling this choice will not only help consumers to improve their energy experience and save on their bill, it will also drive competition between services and unlock the important demand-side flexibility potential to support the energy system.

However, what may seem obvious in other markets, is not yet common in energy. In most European countries, consumer offers are still limited and independent service providers have only constrained or no access to the market and the consumer. This is what the winter package should tackle.
Of course, the benefits of consumer engagement will only show if their flexibility and contribution to the energy system is properly valorised on the market. This is the second set of challenges for the new policies: A competitive and efficient market requires cost-reflective market prices at any moment, and it should be based on equitable product definitions on balancing, wholesale, reserves and local services markets that enable and encourage demand resources along with supply.
International experience and existing projections indicate that Europe could activate at least 10% of its total peak energy demand. This is the equivalent of some 60GW of expensive and polluting back-up generation capacity that can instead be covered by smart energy demand solutions, in a system where the need for flexibility continues to grow. Will the winter package become the vantage point to achieve that?

Frauke Thies
Executive Director Smart Energy Demand Coalition (SEDC)

*SEDC is the European industry association dedicated to making the demand side a smart and interactive part of the energy value chain.
** The following article appeared in the DG ENER Newsletter of May 2016.