Distributed Energy Resources in Europe: Opportunities and Challenges for Generation, Storage, and Demand-Response


Distributed energy resources (DER) — on-site, customer generation (e.g. solar photovoltaic systems), storage, and demand-response resources — can help Europe meet its power needs reliably and affordably. Tapping the full potential of DER in Europe raises many crosscutting regulatory and policy issues that RAP has experience addressing worldwide. RAP advises on topics such as creating market value for highly-flexible resources; developing grid tariffs that enable this flexibility, rather than impede it; allocating DER subsidies fairly and efficiently; improving the integration of “smarter” grid operations; and addressing a range of related wholesale and retail market design issues. RAP draws from its international experience to help European regulators, policymakers, and stakeholders leverage the opportunities and address the challenges associated with Europe’s expansion of DER.

RAP’s “Dealing with the Duck” series (referring to the duck-shaped evolution of the net demand curve) frames key opportunities for integrating a growing solar supply into the power system. Potential market adaptations for Europe include paying for fast-ramping services, creating more accurate price signals that reward flexible, fast-acting resources, and allowing demand response to bid into energy, services, and capacity markets. RAP’s work in Europe expands on these market design ideas in advising member states, the Agency for the Cooperation of Energy Regulators (ACER), and the European Commission.

In particular, RAP’s “Beyond Capacity Markets” concept emphasizes the need for flexible, not just firm capacity, to balance variable renewables and for market rules that enable the full potential of demand response. RAP provided extensive input into the European Commission’s consultations on these themes, prepared papers and presentations on international examples and experience with demand response and related topics for ACER, and successfully introduced beyond capacity market thinking into current policy proposals concerning Germany’s Energiewende reliability challenges.

RAP also introduced, into German policy discussions, a new “dynamic” framework for allocating the costs of subsidies for variable renewables (including DER) as well as grid expansion costs. For example, if a consumer uses electricity from the grid when there is a lot of renewable electricity in-feed (reflected in low spot market prices), then his/her allocation of these costs will be less, relative to periods when electricity in-feed is low (and market electricity prices are high). The purpose is to break away from outdated tariff design—created for very different purposes and power systems— to one that works in concert with the cost drivers and flexibility needs of the future. RAP senior associate Andreas Jahn served as co-leader of Agora Energiewende’s report on this new cost allocation framework and related reforms to the German renewable energy subsidy program (Der Spotmarktpreis als Index für eine dynamische EEG-Umlage, in German with an English summary).

RAP’s global experience working with stakeholders and policymakers on grid operations, performance regulation, and “smart” infrastructure expansion continues to contribute to the debate in Europe on how best to enable DER. Performance-Based Regulation for EU Distribution System Operators provides options for setting future tariffs for distribution system operators (DSOs), particularly when it comes to incentivizing smart grid, distributed generation, and demand response. Nachfragesteuerung im deutschen Stromsystem – die unerschlossene Ressource für die Versorgungssicherheit offers recommendations for improving the regulation and operations of German distribution system operators to encourage scaling up demand response. RAP also provides advisory support to regional stakeholder initiatives focused on overcoming DER barriers, such as the Mid-Atlantic Distributed Resources Initiative in the United States.

RAP provides expertise to European policymakers on distributed storage options, and in particular, how thermal energy storage can greatly enhance the cost-effective integration of renewables. Electricity Storage: Status, Prospects, and Challenges, provides an overview of case studies and best practices presented at the Florence School of Regulation. In EU Policies for Plug-in Electric Vehicles, RAP explores power sector policies that can facilitate the role out of plug-in electric vehicles and the related benefits of this distributed resource to the system.