Power grid operators aim to get smart as Europe turns green

Reuters News
Posted: Mar 19, 2015 12:10 PM

By Geert De Clercq

PARIS (Reuters) - The owners of Europe's electricity grids say they need an injection of cash and a fresh look at regulation if they are to build and operate new, high-tech networks that can channel green energy sources into homes across the region.

So-called smart grids that can handle the intermittent flow of solar and wind energy are vital, say energy firms, if the EU is to meet its renewable energy and carbon emissions targets.

"If we want more renewables, we need smarter grids," said Joao Torres, CEO of Portugal's EDP Distribuicao and head of the distribution system operators' lobby group EDSO.

For decades, the low- and medium-voltage networks that bring power into people's homes were low-tech, one-directional cables.

But with 90 percent of Europe's renewable energy now connected through those systems, the distribution system operators (DSOs) have been forced to manage two-directional power flows so that, for example, citizens with solar panels can both produce and consume power.

France's ERDF, the distribution grid of utility EDF, invested 3 billion euros in 2013 to upgrade its networks, but this kind of investment is rare in an industry whose income depends on tariffs that some state regulators want to keep as low as possible to protect consumers.

The European Commission is aware of the challenges and is consulting the DSOs as part of Commission chief Jean-Claude Juncker's 300 billion euro plan to invest in the bloc's energy infrastructure and re-draw the power market.

The International Energy Agency estimates that between 2014 and 2025, the EU will invest $413 billion in power networks. About three-quarters of that will go to distribution lines.


However, even if the necessary investment comes their way, the DSOs - mostly publicly owned firms controlled by strict rules about what they charge customers - say they need help from regulators in order to turn a profit from the new smart grids.

Europe's distribution grids are highly fragmented and tend to have a local rather than national focus. Although these grids account for 97 percent of Europe's power network, the operators themselves are a patchwork of 2,400 firms ranging from the very big to many small companies that serve a single city or region.

Many transmission system operators (TSOs), which operate the high-voltage lines transporting power across whole countries, are listed and attract investment from infrastructure funds.

But the distribution grids tend to be owned by municipalities and attract little private money. The return on their investments comes from electricity tariffs, over which they have no control, as they are set by national regulators.

This set-up is the result of the EU's 2009 "unbundling" legislation, which forced utilities to sell their networks so that independent grid operators would give all power producers equal grid access.

The DSOs have asked EU Energy Commissioner Arias Canete to help them convince national regulators to raise network tariffs in order to fund new investment.

But authorities, keen to protect consumers, are loath to boost tariffs and say the DSOs fall back on this request too often, regardless of the investment need.

"Whether for smart grids or network security, any argument to induce regulators to boost tariffs is good to use," said former French energy regulator Frederic Gonand.


An alternative way of earning more network fees would be for DSOs to get into new electricity network-related businesses, and many are keen to do so.

They say that many of these activities - like power storage, "demand response" power management and electric vehicle charging stations - are necessary to secure the stability of their networks, but are simply not taking off for lack of investment.

Power storage - through utility-sized batteries or pumped storage plants - is particularly important, they say, to balance out the variable flow of solar and wind.

But because many countries liken storage to power generation the business is off-limits for network operators that were split off from power utilities with the express aim of keeping the market open.

Grid operators admit these new activities could jeopardize their legally required neutrality toward power producers.

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"When you are a neutral market facilitator you cannot be a market party," said Andre Jurjus, director of Dutch grid association Netbeheer Nederland.

But they also argue that their investment could help these markets take off so that new private players can emerge.

One of the biggest prizes is the market for electric vehicle charging stations, which has been struggling to take off because consumers are reluctant to buy electric cars until there are more charging points.

In a note to French President Francois Hollande about EU energy networks, Michel Derdevet, a board member of Europe's biggest DSO ERDF recommended setting up a 70,000 km EU-wide network of charging stations - with investment from European DSOs - to tap into this pent-up but potentially huge market.

One new activity in which DSOs have not been challenged are "smart meters", which provide real-time information about power consumption.

Most EU countries are allowing their DSOs to invest in their roll-out, supported by an EU directive requiring 80 percent of households to have smart meters by 2020.

These meters are already at the center of fierce debate about who will benefit from the reams of consumption data they will generate - utilities, power retailers, DSOs, or Google-style specialists with experience in monetizing customer data.

Others scoff that there will not be enough profit to attract the big guns.

"Google will not take over the DSOs. As long as there are regulators, there will not be enough profit in this business," said Reinhard Brehmer of Austrian DSO Wiener Netze.

(Reporting by Geert De Clercq; Editing by Sophie Walker)