Innovation to Underpin the Market-based Energy Transition Market-based Energy Transition

Sound research, development and innovation policies have to bring new technologies to the point at which markets will decide about their uptake. Innovation indeed goes beyond technological innovation; it also encompasses process and business model innovation.

Processes have to be tested, and best practice needs to be shared. Sound innovation policies and an innovation culture shared by all stakeholders are needed for success.

Currently, the member TSOs of ENTSO-E already engage in a large number of research and development projects and are committed to innovation. ENTSO-E and EDSO for Smart Grids set up annual conferences on sharing results and addressing common network issues. As a result of missing research and development incentives for TSOs in several countries, innovation efforts across Europe are very heterogeneous. The regulatory model for TSOs is based on national oversight to ensure cost-effective delivery for local consumers. This poses three challenges for fostering the required participation of TSOs in innovation underpinning the large-scale transformation of the power sector. Indeed, this innovation is based on innovation clusters, including several parties from different geographic locations, sectors, or parts of the power sector value chain. Pilots, trials and errors are needed to test new technologies and processes.

The first challenge is that the legal mandate of national regulators is to primarily ensure the correct application of national legislation and to protect national consumers. It is important that NRAs engage in a cultural change where they take the regional and European dimension much more into account.

Secondly, regulators often allow TSOs to innovate provided they do this within their overall regulatory allowance. However, if there is a major transformation of the power system, as is the case to meet the EU climate policies, significant capital investment is necessary also for TSO R&D, which needs to be recognised.

Finally, the scale of the current EU policy has implications for the pan-European power system and not just the individual Member States’ systems. While learning and knowledge can be achieved and shared from local to pan-European level, it is necessary that a specific pan-European power system innovation is enabled. The funding mechanism to allow for this evolution challenges the existing regulatory model. There is, therefore, a need for regulators to address the lack of innovation support in the TSO and DSO sector to share best practice on models like RIIO1 or ARPA-E2.

Recommendations

  1. ACER should address the missing innovation incentive issue in regulated networks through non-binding benchmarking across Europe.
  2. TSOs will support policy-makers in identifying regulatory barriers to innovation and support their removal.

A significant innovation potential lies with new actors from the ICT sector, independent aggregators, prosumers and storage solutions. The TSO community thus needs to be prepared for game-changing modifications such as low-cost local storage and must be prepared to define the cooperation with these actors in activities to smarten the grids.

  1. RIIO stands for Revenue = Incentives + Innovation + Outputs and refers to Ofgem’s regulatory model for network companies.

  2. ARPA E is the Advanced Research Project Agency Energy, depending on the US Department of Energy, and using competition and market elements in research support.