A new era for Local Flexibility Markets

A new era for Local Flexibility Markets

EPEX SPOT launched the first pilot project for a Local Flexibility market already in 2018, in the framework of Enera. Now we are ready to take our Localflex offer to the next level – here is how.

With a dedicated and tailor-made trading system called Local Energy Market (LEM) platform, we will provide an end-to-end process for System Operators and flexibility providers, covering functionalities across the full value chain of flexibility procurement. Local Flexibility markets will play a central role in the energy transition. By using available flexibilities efficiently, costly redispatch measures – having become very frequent due to the growing share of renewables in the generation mix – can be avoided.

Congestions – bottlenecks on the power line

One particular growing concern of the electricity system is the congestion issue: In other words, how well the electricity grid is dimensioned to transport and distribute electrical energy from production to consumption centres, to avoid congestion situations in which “too much” electricity flows through “too small” cables, which can ultimately lead to blackouts. Due to the development of renewable energy sources and the decentralisation trends of the electricity system, such congestions have been rising in recent years on the transmission level (extra high-voltage grids) and are expected to further grow on the transmission and distribution (low voltage) levels. This is a consequence of further renewables growth, new regulatory guidelines as well as the rising electrification of heating and electric mobility. Transmission and distribution system operators (TSOs and DSOs) are responsible for the security of supply and therefore need to alleviate any congestions before they occur.

Apart from hefty investments to reinforce the grid, one way to solve such congestions is to use flexibility, in other words the ability of assets connected to the electricity grid to raise or lower their consumption or production. This way, the grid flow situation is changed, and congestions can be avoided. Consequently, there is an ever-increasing need for flexibility, that can be used to improve grid security but also optimise grid costs and investments, to the benefit of social welfare and electricity consumers. Traditionally, TSOs have used flexibility in regulated or semi-regulated environments (via redispatch processes), while DSOs have mostly worked on grid reinforcement and very little on flexibility use. 

Congestion management has become an important cost item in the context of the energy transition. In Germany, for instance, the cost of congestion management rises above 1 billion Euros per year. In order to keep the energy transition as cost-efficient as possible for European citizens, innovative solutions are needed to efficiently use flexibility to solve congestions. Local Flexibility markets are such a solution.

Flexible assets are the key to a decarbonised power sector

Policy-makers have also identified grid congestions as a major challenge in the context of the energy transition. The European Union, through the Clean Energy Package states that:

  • Congestion-management has to be market-based (Regulation (EU) 2019/943 Art. 13);

  • DSOs need to consider alternative options to grid investment such as market-based flexibility procurement (Directive (EU) 2019/944 Art. 32);

  • TSOs and DSOs need to coordinate their operations (Regulation (EU) 2019/943 Art. 57).

A new era for Local Flexibility Markets

In a speech from November 2020, EU Commissioner Kadri Simson estimates that up to 5 billion per year of distribution grid investments could be avoided through such measures.

The key to resolving grid congestions in a decentralised electricity system is demand-side flexibility. These are assets, such as batteries, that can ramp their electricity consumption up or down on demand. By doing so, they can support the System Operators in the establishment of grid stability.

In order to keep the energy transition as cost-efficient as possible for European citizens, innovative solutions are needed to efficiently use flexibility to solve congestions. Local Flexibility markets are such a solution.

The interplay of supply and demand

In order to efficiently identify when and where flexibility is needed, a market mechanism, determining offer and demand for flexibility, is most useful. In practice, local flexibility can be traded through an auction in a certain geographical area. System operators that foresee or encounter congestions on their grid can reserve flexibility in the long-term and utilise it in the short-term to alleviate congestions, but also reduce grid investment costs. Owners of flexible assets, such as demand-response for instance, can submit orders to sell. The traded flexibility is then used on the grid to prevent congestions. Thanks to the Localflex market, System Operators benefit from a smart solution to manage and optimise long-term grid planning and short-term operations. Localflex markets therefore have the capacity to unlock the potential of flexible assets and to use them in a way that is efficient for the grid. This renders the energy transition more cost-efficient and increases social welfare. 

Benefits of Localflex markets

Towards more flexibility, efficiency and transparency

A new era for Local Flexibility Markets

A dedicated trading platform - setting a new pace for Localflex

In 2021, EPEX SPOT has acquired a dedicated trading platform that has been built specifically for use cases related to flexibility procurement and congestion management. It offers an end-to-end process for System Operators, covering functionalities across the full value chain of flexibility procurement. Compared to previous use cases of local flexibility markets such as the enera project, the main novelty is that with this new trading platform, market processes rely on auction trading, with a state-of-the-art algorithm and covering both, flexibility reservation and utilisation products. This enables better welfare optimisation and closer coordination between Transmission and Distribution System Operators. With this, EPEX SPOT ushers in a new era for Localflex trading.

For many years now, EPEX SPOT has been a pioneer in the development of new products and markets to accompany the energy transition and its “3D” trends – decentralisation, decarbonation, digitalisation. We believe that these trends create new challenges, but also new opportunities for the electricity system. Innovation is one of the key-features of our work, and this is how we directly contribute to the fight against climate change.