The European Union’s commitment to achieving a climate-neutral future hinges on a significant increase in the use of renewable energy, aiming for up to 45% by 2030. This ambitious goal necessitates a doubling of renewable electricity generation, far outpacing the slow adaptation of the existing grid infrastructure. Simultaneously, the shift to a decentralised energy model is also underway. All of this puts significant pressure on the EU’s aging electricity grid, emphasising the critical need for climate-friendly flexibility resources to support the transition.
The “missing link” for stabilising a high-renewable energy system
Power system flexibility is the ability to respond in a timely manner to variations in electricity supply and demand. This becomes particularly crucial in a high-renewable energy system, given the intermittent nature of renewable sources. Today, much of the flexibility that backs up renewables is sourced from fossil fuels. However, meeting climate goals requires a shift towards climate-friendly resources, specifically demand-side flexibility (DSF) and energy storage. This transition is crucial to meet the increasing demand for flexibility, which needs to double by 2030, at pace with the accelerated renewable rollout.
The European Commission’s recently unveiled Grid Action Plan acknowledges electricity grids as the “missing link” in the energy transition but falls short in adequately addressing the EU’s ‘Flexibility Gap’ that exists between targets for variable renewable and low-carbon generation and the amount of associated flexibility required. Addressing the ‘Flexibility Gap’ is key to ensure renewables integration, promote system efficiency and accelerate grid decarbonisation while simultaneously enhancing energy security. The lack of concrete regulatory measures that would facilitate the integration of flexibility at distribution level is disconcerting and a missed opportunity to successfully integrate renewables, solve congestion issues and minimise grid infrastructure expansion.
Recognising the climate and economic benefits of demand-side flexibility
DSF includes various technologies like off-peak electric vehicle recharging, smart meters, remotely controlled appliances, and storage in batteries (e.g., energy storage systems, data centres, and electric vehicle batteries). These solutions not only enhance renewable integration and grid flexibility but also translate into tangible financial benefits for EU Member States and prosumers.
DSF effectively reduces curtailment of renewables, ensuring a more efficient utilisation of available resources and minimising the wastage of generated power. For wind and solar farms, DSF would reduce the need for curtailment by 15.5 terawatt hours (TWh) by 2030 – 61% less from current levels. Full deployment of DSF by 2030 could also lead to a reduction of more than €71 billion per year for EU households on their electricity consumption.
Expediting DSF deployment is paramount for reducing reliance on extensive infrastructure investments. The Commission estimates a need for approximately €584bn in electricity grid investments this decade, primarily in distribution grids. Aside from the substantial investment requirements, the planning, permitting, and completion of new grid infrastructure typically spans several years.
Full deployment of DSF by 2030 could lead to €11.1–29.1 billion saved in annual investments that would otherwise be needed to reinforce the electricity distribution grid to deal with the additional load. While both approaches are essential, the scale of investments and time constraints associated with grid infrastructure underscore the urgency of prioritising DSF deployment.
Enabling flexibility: key to attracting much needed private investment
The shift to a decarbonised energy system hinges on unlocking private investment in flexibility resources alongside renewables. The two must go hand in hand. A recent report highlighted the sheer scale of the challenge: €350 billion will be needed annually until 2030 for the green transition, while EU public funding could contribute only around €500 billion by 2032.
Unlocking private investment requires an enabling regulatory framework and incentives. Emphasis should be put on getting existing technologies deployed in the short-term to educate the population, create the market for behind-the-meter assets and build momentum for the energy transition. In this regard, positive momentum may be the most underestimated and crucial element for grid decarbonisation and modernisation.
Greater clarity about the EU regulatory framework for storage and about remuneration for bringing flexibility into the grid is also needed. Well-designed flexibility products help prosumers predict their return on investment encouraging private investments needed to upgrade buildings and install related electrical infrastructure. For businesses, return on investment is fundamental, and they hold the greatest potential to offer DSF.
Harmonisation of rules through standardisation in upcoming network codes is needed to reduce the number of certification regimes and design rules that manufacturers of flexibility technologies need to comply with. This will minimise barriers to market access allowing private investment to flow. However, it is key that the distribution level is not excluded from harmonised rules, given that lack of standardisation at the lower market level is the biggest obstacle for the facilitation of competitive expansion of DSF services across the EU.
Placing flexibility at the forefront of the new Commission’s priorities
The reform in electricity market design brings forth several positive advancements to foster flexibility, including a national assessment of flexibility needs, granting consumers the right to dynamic electricity price contracts, and promoting a Total Expenditure (TotEx) approach in network tariff designs. Swift implementation of these provisions is crucial. While the recent focus on flexibility in the Grid Action Plan is commendable, it falls short. Building on the momentum initiated by the Grid Action Plan, the upcoming European Commission must elevate flexibility as a key political priority alongside renewables deployment and grid investment. This will put Europe on the road to a true internal electricity market with the consumer at the centre and enable Europe to meet its decarbonisation ambitions.
