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Energy Retailers Perspective on the Deployment of Smart Grids in Europe

The Smart Grid is only a platform for a Smart Energy Ecosystem, in which Customers play the first violin. Reflections on a complex Multi-Party energy issue.
Disclaimer: This document should not be used for any other purpose except to help to determine a common position among individual experts in the European energy markets. This document is for information purposes only and does not bind any of the contributors, or the organizations they are affiliated to, to any statement incorporated. No one is liable for errors or omissions in this document.

Table of Contents
List of Figures....................................................................................................................................... 3 List of Tables ........................................................................................................................................ 4 Abstract........................................................................................................................................................ 5 1. Introduction ........................................................................................................................................ 10 1.1 Foreword ...........................................................................................................................................11 1.1 Introduction and context.................................................................................................................... 13 1.2 The Role and Responsibilities of Energy Retailers ............................................................................. 15 The Retailer in todays Energy Value Chain ........................................................................................ 15 The place of the Retailer in Smart Grids .............................................................................................. 15 The Retailer in more detail: a crucial player in the energy market ........................................................ 17 2. The evolution of the Smart Energy Ecosystem .................................................................................... 20 2.1 The link between Energy Retailers, Smart Grids and Energy Efficiency: an emerging ecosystem .......22 The role of the Retailer = resource for Smart Grid development ...........................................................22 Energy Retailers and successful Smart Grids ....................................................................................... 23 2.2 Consumers Perspective on Energy Efficiency ...................................................................................24 From smart meters to Smart Grids .......................................................................................................24 Energy efficiency and the customer ..................................................................................................... 25 2.3 The impact of Micro Generation........................................................................................................26 The impact of Micro Generation for Consumers: technology and economy ..........................................26 The impact of Micro Generation on the Grid: handling the challenge to grid reliability and efficiency .. 27 Timing is crucial in Balancing Demand and Supply ............................................................................. 27 2.4 Developing Successful Customer-Oriented Programmes ....................................................................29 Evolution of customer energy efficiency..............................................................................................29 Requirements for success ................................................................................................................... 30 2.5 Demand Side Management ................................................................................................................33 2.6 Information Exchange in the Smart Energy Ecosystem ......................................................................36 Growing information dependency requires drastic rethinking of smart grid fundamentals .....................36 Types of information flows: determining the right level for the various parties ..................................... 37 Information dependency in the Smart Energy Ecosystem: where Demand and Supply meet in an open energy market ..................................................................................................................................... 37 Challenges in information exchange: a multi-party system ...................................................................38 2.7 Regulatory challenges in achieving Smart Energy Ecosystems ...........................................................42 2.8 Customer-oriented Smart Grid Pilots: MeRegio and Model City Manheim ......................................... 45 2.8.1 MeRegio Project ...................................................................................................................... 45 The vision: The customer as an active element of the smart grid .......................................................... 45 Changing role of retailer required ........................................................................................................46 The success of the system is based on four key elements...................................................................... 47 2.8.2 Model city Mannheim............................................................................................................. 47 Implementing a decentralized energy management system in homes .................................................... 47 2.9 Smart grid perspective from technology providers .............................................................................49 3. Conclusions and Recommendations ........................................................................................................ 55 3.1 Conclusions and recommendations .................................................................................................... 55 Conclusions: freedom within limits required ........................................................................................ 55 3.2 Energy Retailers demonstration project proposals ..............................................................................58 Document data ...........................................................................................................................................66 Glossary of Terms ......................................................................................................................................68

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List of Figures
Figure 1.Simplified representation of the position of the Energy Retailer / Supplier in a Deregulated energy market (Source: SAP) ................................................................................................................................... 5 Figure 2. Transition of the Energy industry .............................................................................................. 14 Figure 3. Traditional Energy Value chain: one-way directions (Source: Jeroen Scheer, Nuon Vattenfall) ..... 15 Figure 4. Reversing the Energy Value chain: two-way interaction of all flows (Source: Jeroen Scheer, Nuon Vattenfall) .................................................................................................................................................. 15 Figure 5. Simplified representation of the position of the Energy Retailer in a Deregulated energy market (Source: SAP) ............................................................................................................................................ 16 Figure 6. Simplified depiction of market participants serving the Customer (Source: Jeroen Scheer, Nuon Vattenfall) .................................................................................................................................................. 16 Figure 7. Market Role RETAILER unravelled (Source: SAP)...................................................................... 17 Figure 8. Depiction of the Evolution towards Smart Energy Ecosystems (Source: Jeroen Scheer, Nuon Vattenfall) ................................................................................................................................................. 20 Figure 9. Evolution in establishing successful customer-oriented energy efficiency offerings (Source: Jeroen Scheer, Nuon Vattenfall) ........................................................................................................................... 30 Figure 10. Preconditions for Successful Customer-Oriented programmes (Source: Jeroen Scheer, Nuon Vattenfall) .................................................................................................................................................. 31 Figure 11. Demand Side Management: achieving business value (Source: Wildan Energy Solutions) ........... 33 Figure 12. Creating Equilibrium in the Smart Grid between demand and grid sides (Sources: Martijn van Glabbeek Nuon Vattenfall) ......................................................................................................................... 37 Figure 13. Balancing Customer side demand and supply within the Physical boundaries of the grid, in an economic arena (Sources: Martijn van Glabbeek Nuon Vattenfall) ..............................................................38 Figure 14. The new EU energy world depicted ............................................................................................39 Figure 15. Examples depicted (Sources: Martijn van Glabbeek Nuon Vattenfall) ........................................ 40 Figure 16: Source and Label from MVV ................................................................................................. 47 Figure 17: Source and Label from MVV..................................................................................................48 Figure 18. Different layers in the Energyweb concept [Source: ENERGYWEB]. ................................50 Figure 19: The Demand Side Service oriented Platform a first vision of an overall gird operating system [Source: SEESGEN-ICT] ............................................................................................................ 53 Figure 20. Project Benefits per Stakeholder ..........................................................................................63 Figure 21. Research and Development Proposals.................................................................................. 65

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List of Tables
Table 1. Conclusions regarding retailers' position and role in smart grids ...............................................8 Table 2. Description of ETSO Retailer-related market roles .................................................................. 17 Table 3.Key activities of a Retailer (additional to existing tasks) ................................................................. 18 Table 4. Conclusions regarding Retailers' position and role in Smart Grids .......................................... 57

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Abstract
In deregulated energy markets, customers and their main contact point energy retailers have a unique opportunity, technologically as well as economically, to advance the efficient development of the smart grid throughout Europes competitive energy markets. This White Paper details the various aspects of the retailers position and the part Retailers can effectively play in the central functionalities enabled by the smart grid - through cooperation with consumers and grid managers (DSO), providing the passage to the wholesale market.

Figure 1.Simplified representation of the position of the Energy Retailer / Supplier in a Deregulated energy market (Source: SAP) The whole energy value chain will become bi-directional when decentralised generation starts to be deployed on a large scale. This will have a critical impact on the way grids are managed, since not only grid managers but also other parties have a large stake and interest in that. For eventual success, a clear regulatory framework in which all market actors from generation to consumption can play their full part, is required. Basing this framework on the interests of one or the other party can therefore substantially risk the efficient development of the smart grids or even the complete development of the smart grids. This multi-party ecosystem will require a balanced industry perspective, to fully exploit the potential of each member of this value chain, in order to motivate the necessary engagement by end-consumers to ensure success. Major changes in an emerging energy landscape, with new technologies already available or soon expected on the market, will open up new possibilities within the retailer/consumer relationship. These include programmes involving demand response, consumer feedback, energy efficiency advice, tariffs for electric vehicles etc. The immerging programmes begun by energy retailers and others need to be recognised and actively supported, in order to ensure smart grid rollout benefits consumers rather than only adding to the cost of their electricity. This will help to ensure both the growth of European industry through smart grid development and rollout while at the same time guarding the interests of European consumers. Existing energy industry models will change. New parties and roles (like aggregators and energy service providers) will enter the market with new business models and propositions. New processes and interactions between new and existing parties will be defined and new types and uses of data will be introduced. This leads to additional issues of interoperability, ownership, privacy, security, quality assurance, and performance of the data exchange. All these roles act in a smart energy ecosystem, in which a balance between various objectives needs to be established in the economic terms, taking grid limitations and the delicate balance between demand and supply into account. It places customers at the heart of the smart grid, where the other

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parties co-operate to ensure the energy market functions efficiently, environmental goals are met, and security of supply is ensured. In the smart energy ecosystem open competition should be fully enabled for energy retailers. Competition is possibly the best way to promote energy efficiency. In a true free market, retailers will develop customer oriented programmes and offerings, providing economic benefits and energy savings. Information availability and customer segmentation are fundamental to meeting customers and market requirements. Energy efficiency is by far the greatest opportunity for retailers in the current energy market with margins under pressure, and those who approach it in the most effective way will have a significant competitive advantage. The main driver for the successful uptake of smart meters is consumer confidence, satisfaction and engagement with the new technology, including usability. With smart meters and smart grids new opportunities appear for EU citizens, but as with any new technology, increasingly sophisticated functionality can result in unintended consequences. In this document we elaborate on the consumers perspective on smart meters and smart grids. It is emphasized that it is essential to keep the consumer interest in the forefront and to learn from lessons in EU Member States and around the world, incorporating these experiences into guidance materials at EU and Member State level as appropriate. Additionally, in this document key topics of interest associated to the deployment of smart grids are also developed: Insights into the impact of micro generation on consumers and their behaviour as well as on the grid. The introduction of micro generation must be accompanied by the introduction of new technologies like active demand response on smart grid appliances and new product offerings and aggregation techniques aimed at optimizing the timing of the consumption in order to align production and consumption. Successful customer-oriented programmes need to bundle energy sources, technology, price and service offerings that can attract different customer groups to energy efficiency programmes offered. Many components are available for designing products in this area, varying from energy advice websites to very sophisticated home energy management programmes, including demand response initiatives and time-of-use tariffication. In this paper we elaborate benefits, best practices and key requirements for the success of customer-oriented programmes Two customer oriented programmes that are under execution practical examples - are described and provide a good illustration of key aspects currently being tested by two consortiums led by the European utilities EnBW and MVV. Demand side management (DSM) provides a range of technical, organizational and behavioural solutions to cut or decrease electricity consumption and shift demand in order to bring it in line with more variable generation of electricity coming from renewable energy sources, and thus optimising the reduction of CO2-emissions. DSM is the implementation of policies and measures which serve to control, influence and generally reduce electricity demand while maintaining the balance with the available generation and optimizing the use of the grid. Benefits, obstacles and the role of the energy retailer in relation to DSM are described in detail The need for collaboration between the different market participants is exhaustively mentioned as a key success factor for the implementation of the smart grid concept. Business collaboration means that having a clear framework of information exchange between the multiple active parties is a fundamental precondition for the success of the entire concept. Measuring, transmitting and processing data quickly and accurately is a technical challenge in itself. In the smart energy ecosystem, it needs to be very clear to whom the data belongs and how do we deal with issues of security and privacy in a much more complex and high volume information sharing scenario.

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The regulatory challenges in achieving the smart energy ecosystem concept are depicted in detail. Regulators at national and European level are already giving consideration to certain key aspects concerning regulation of network companies. However the implications of smart grids are much wider and are considered in this White Paper. It is up to the EU and its Member States to establish a regulatory framework in which the smart energy ecosystem, depicted as a multi-party system with various interests and objectives, can evolve towards the required state, in line with the goals set forward by the EU. However, energy retailers suggest some guiding principles for the regulatory framework, which are outlined below. Regulation should Clearly distinguish smart grids from smart meters in terms of economic assessment (cost-benefitanalysis as proposed in the Third Energy Package) Ensure that investment in smart grids and smart meters is efficient and not gold plated Be conceived and developed within existing structures at national, regional and EU level Identify and resolve regulatory barriers or disincentives for smart grid development Recognize and trust industry to develop the necessary detail, within a high-level framework, rather than requiring detailed ex ante regulation Commit the necessary regulatory resources to support and help guide industry development Recognize the importance of wide stakeholder involvement not just consultation but participation in joint industry platforms overseeing industry system design and development Maintain the importance of non-discrimination with regard to the services available to system users Give priority to ensuring maximum scope for retail differentiation and innovation in the services to be made available Maintain the principle of the supplier being the primary point of contact for the customer Give retailers the customer-facing role in demand side management and demand response, with intervention by network operators only in emergency situations. Conclusions are presented regarding how we draw the crucial role of the consumers and the energy retailer in a successful deployment and evolvement of the smart grid and energy ecosystem. The conclusions that can be drawn for this White Paper are the following. Nr. CONCLUSIONS

1 Major changes in an emerging energy landscape, with new technologies already available or soon expected on the market, will open up new possibilities within the retailer-consumer relationship. The energy value chain will become bi-directional for example with the introduction of micro-generation and energy efficiency focused technologies. See section 1.2 2 If we want smart grid advantages to reach customers, and energy efficiency targets as well as targets for the use of renewable energy source to be achieved, retailers are essential. Energy retailers must be considered as the linking pin between customers, who are at the heart of a smart grid / energy ecosystem when achieving the EU goals as set forward. See sections (1.2 &) 2.1 3 Since the smart grid encompasses a multi-party ecosystem, with differing interests and priorities among parties, initiatives and regulation while safeguarding the interests of the stakeholders must maximize the potential of the entire value chain. If this does not occur the tasks which must be performed by each party to achieve long term EU objectives will either never develop or be hindered by regulatory barriers. See section 1.1 & 2. 4 The main driver for the successful uptake of smart meters is consumer confidence, satisfaction and engagement. It is essential to keep the consumer interest at the forefront and to learn lessons from other deployments. See section 2.2 & 2.4. 5 Developing successful customer oriented programmes that are aligned with the EU
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Nr.

CONCLUSIONS

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energy goals is primarily the responsibility and a key task of the Retailer. Retailers need to align with the regulatory framework and where necessary with the smart grid infrastructure providers and others. See section 1.2. Growing data and information dependency requires drastically rethinking of smart grid fundamentals in that communication capabilities become as central as hardware. We should create an information model to help identify information needs and granularity. Industry systems will have to be overhauled and new interfaces standardized. See section 2.6. The retailer will evolve towards a customer-oriented demand side manager and energy service provider. The customer is an active element of the smart grid. The combination of Retailer and Customer therefore will be of crucial importance in achieving (EU and Member States) energy targets. See section 2.8 A key challenge for demand side management and other customer-focused programmes relates to standardization in the areas of technology and regulation. If the EU is to achieve its set targets for energy, regulators and policy makers must ensure that a solid, multi-party regulatory framework is established very quickly, taking the various interests into account. Major challenges include achieving interoperability and open, technology-independent communication through standardisation of interfaces and communication and agreeing on functionalities and common protocols in the area of technology, both infrastructural and applications. The regulation, especially with regard to technology, must however be open enough to allow for new technologies and the possibility of diversification. See section 2.5. Several successful pilot projects for smart grids and smart energy ecosystems are executed and planned. The lessons learned from these pilots should be very seriously taken into account. See section 2.8 Regulators should determine the regulatory framework that allows industry retailers, grid managers and other market participants to develop the detail. Regulators should monitor progress in the deployment of smart meters and smart grids together with customer acceptance and uptake of the new potential. It is important that they give priority to ensuring maximum scope for retail differentiation and innovation in the services to be made available. See section 2.7.
Table 1. Conclusions regarding retailers' position and role in smart grids

We also recommend a way forward in ensuring that the conclusions drawn are taken into account within the EU and the various mainly grid management driven - bodies that are working on the depiction of the smart grid.

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Figure 17. Proposed steps to take on our way forward In summary, this paper describes issues perceived as critical by senior industry experts associated with major European energy retailers, SAP and VaasaETT. Some of these issues might become showstoppers as the energy markets continue to develop and the technologies associated to the deployment of the concept of smart grids continue to quickly evolve as many pilots, prototypes and projects are starting in different European countries. The authors of this White Paper trust that policy decision makers will find here detailed information that will support the process of shaping policies to accelerate meeting the energy efficiency goals stated by the EU as well as a description of important research projects that should be initiated to further investigate on critical topics mentioned in this White Paper.

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1. Introduction
This document presents a perspective on behalf of European energy retailers regarding the deployment and evolvement of smart grids and smart energy ecosystems. In a deregulated energy market, customers and their main contact point - energy retailers, have a unique opportunity, technologically as well as economically, to advance the efficient development of the smart grid throughout Europes competitive energy markets. The whole energy value chain will become bi-directional when decentralised generation starts to be deployed on a large scale. This multi-party ecosystem will require a balanced industry perspective, to fully exploit the potential of each member of this value chain, and in order to motivate the necessary engagement by end-consumers to ensure success. This document provides an overview of the way energy retailers recommend the smart grid should evolve in order to meet the goals set by the European Commission. It stresses the need for a thorough analysis of the balance of responsibilities within this multi-party system, in order to guarantee a continued high level of customer service and improved market competition, while still ensuring the full exploitation of the smart grids energy efficiency potential.

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1.1 Foreword
The present document, Energy Retailers Perspective on the deployment of Smart Grids in Europe, has been developed out of working group 3 on Demand and Metering within the ETP SmartGrids initiative. It should be emphasized that the opinions expressed are intended to contribute to the clarification of aspects perceived as crucial for the deployment of smart grids in Europe by this workgroup. The statements and opinions included are not binding in any way to the organizations mentioned in this paper. This paper is summarizing the different opinions expressed by the specialists that are associated to major European energy retailers, VaasaETT and SAP. Given this nature not all individual contributors might subscribe to all the statements included in this whitepaper ETP SmartGrids (http://www.smartgrids.eu) is a European Technology Platform (one of about 35 Platforms) initiated by the European Commission in 2005 to set up a Vision, Strategic Research Agenda (SRA) and Strategic Deployment plan (SDD) for the European Electricity Networks of the future and smarter energy systems focusing on end consumers. ETP SmartGrids and the other Energy ETPs and initiatives (wind, PV, CSP, CCS, bio-Energy, nuclear fission, fuel cells and hydrogen, Smart cities) contribute to the Strategic Energy Technology plan (SET Plan) of the European Commission aimed at facilitating achievement of the European energy targets of 20% energy efficiency, 20% CO2 reduction and 20% of renewable energy share in 2020 compared to 1990s levels, while ensuring a fluid energy market and security of supply. Through research, demonstrators and deployment projects supporting the European 2020 energy targets, ETP SmartGrids has identified key stakeholders who are indispensable to making the necessary changes. In 2008, the Top 7 DSOs (that led to the creation of the E-DSO Association) and the Top 7 TSOs (within the ENTSO-E Association) formed a project-based initiative to define the research activities and demonstrators that Network System Operators need to conduct till 2020. The white paper called EEGI (European Electricity Grid Initiative), which targets the creation of the European Industrial Initiative for Electricity networks, was presented to ETP SmartGrids stakeholders on March 10th 2010 for feedback and issuing of a new EEGI white paper reviewed and aligned with all stakeholders. Towards the end of 2009, DG Energy initiated a two year (regulatory) SmartGrids Task Force, involving about 25 Associations, to support SmartGrids deployment1. Three Expert Groups were created focusing on (EG1) minimum requirements of SmartGrids, (EG2) data handling and consumer protection and (EG3) SmartGrids roles & responsibilities and funding mechanisms. The first draft recommendations of the three EGs were produced in June 2010. Within the ETP SmartGrids initiative, Demand and Metering has been well represented as WG3 since the foundation of the platform in 2005, focusing on end consumers. Retailers have the most direct contact with end consumers in the open energy market. The activities of WG3 contributed to the Vision, SRA Lighthouse research projects and SDD Consumer related business cases. However, the role of suppliers, retailers, data aggregators and ESCO stakeholders has not had yet a high profile in the various SmartGrids Network initiatives. Since July 1st 2007, the European energy market has been fully opened and liberalized, encouraging competitive power production and retail supply to end customers. To comply with the internal market, every
1

http://ec.europa.eu/energy/gas_electricity/third_legislative_package_en.htm Page 11

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European Member State has to develop national conditions to eliminate monopolistic abuses and to enable fair competition. For instance, unbundling of distribution and supply/retail activities requires a clear separation between the infrastructure assets and the energy services value chains. After five years of ETP SmartGrids WG3 Demand & Metering activity, drawing on the inputs of 50 expert members of the working group during ten workshops, and considering the progress of the other stakeholder activities (including the recommendations of the ICT for Low Carbon emissions Smart Distribution Networks DG-INFSO 2008 Consultation on Energy Efficiency - http://ec.europa.eu/information_society/ activities/sustainable_growth/docs/sb_publications/pub_smart_edn_web.pdf) the workgroup concluded that a position paper from European energy retailers is required. A sub-group of leading retailers was formed, with the aim of producing a consistent and forward looking perspective in an open European market context.

ETP SmartGrids WG3 Demand and Metering: Energy Retailers Stakeholders

Coordinated by:

This white paper was created by representatives from some of the most important energy retailers in Europe (Centrica, EDF, Electrabel, EnBW, E WIE EINFACH, Iberdrola, Nuon/Vattenfall, MVV, SPE Luminus and Yello Strom) who belong to the ETP SmartGrids WG3 Demand and Metering. In addition, it has taken into account feedback from various other technology, research, network, regulators and consumer stakeholders during regular plenary workshops of the WG3. I would like to express my warm thanks to these WG3 technology, research, regulation, network and consumers stakeholder members, to VaasaETT and SAP for their coordination and to the energy retailers representatives who actively collaborated, despite competitive challenges, to the excellent content and quality of this positioning paper.

Dr Maher Chebbo Chairman of the WG3 Demand & Metering/Retail European Technology Platform (ETP) SmartGrids (VP, Head of Utilities & Services Industries for Europe, MEA&I SAP)

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1.1 Introduction and context


Liberalized energy markets are among the most complex marketplaces in operation at present. As well as competitive energy retail markets, the EU energy market framework led to the development of a number of related markets, such as balancing power markets, wholesale markets and CO 2 emission markets. This market structure of power generation, transportation and retail delivery should enable the three main goals of energy supply to be met: 1. 2. 3. Competitiveness Sustainable development Security of supply

The different market participants have different, complementary or competitive interests. To ensure, among other services, the delivery of energy to end-consumers, these goals need to be balanced in a fully integrated and mutually reinforced framework that together forms the EU energy market2. Traditionally grid operations are based on the calculated balance of supply and demand. A limited pool of traditional generators has represented supply and retailers/suppliers have represented demand; balance is achieved by monitoring demand and adjusting supply in real time. However, many new technologies are now emerging, notably related to the provision of renewable energy, including wind and solar. Among other emerging technologies are micro-CHPs, fuel cells, heat pumps and smart appliances, mainly aiming at energy efficiency and at decreasing environmental pressure. All these new technologies will have a significant impact in the way energy is consumed and produced, partly reversing the energy value chain. They also put significant pressure on grids, which need to drastically evolve in order to cope with these intermittent statuses. The development of competitive national markets and the deployment of decentralized power, (micro) generation facilities, that are integrated in the distribution network call for a bidirectional flow of energy between centrally placed power plants, transmission network, distribution network and customer assets. European States are planning to generate some 20 percent of their electricity from intermittent renewables such as wind and solar by 2020. In order for these renewables to be integrated into the system efficiently, demand response programmes will be central to help balance supply and demand without endangering security of supply and to avoid unnecessary fossil fuel peak load plants. A major focus of smart grid development has been the deployment of advanced metering infrastructures (AMI), complemented by development and deployment of smart grid infrastructures. Deployment of AMI accelerates the transition of the energy industry to the point where the value of the information about customers and provided to customers, becomes as important as the volume/price of the energy that is being supplied. Better information will help customers to actively manage their consumption. They will also gain the increased ability to exercise choice in the nature of their consumption e.g. making greater use of renewable energy resources etc.

Philip Lowe Director General for Energy European Commission Priorities of the new European Commission, June 2010, Brussels Page 13

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Figure 2. Transition of the Energy industry Potential benefits of Smart Grid deployment (Source: SAP) Electricity customers and decentralized energy producers will be able to optimize their investments in distributed energy resources such as photovoltaic and to engage in demand response programmes. In a competitive energy market this behaviour is stimulated by retailers as the first contact point for consumers, with information on energy usage being provided by retailers as part of their product and services propositions. In many countries the grid manager will not be visible for end-consumers, since the market setup is that retailers are their main/usual point of contact. This offers retailers the opportunity to develop customer oriented programmes, which improve the efficiency of the entire electricity system. Overall market transparency will be considerably improved as accurate, real time information about energy consumption and prices become available to final consumers. In-house displays and solutions to residential and commercial consumers also have the potential to lower overall consumption, potentially linked to smart devices programmes, not necessarily involving a smart meter. Ultimately, most smart grid solutions whether based on smart meters, appliances or demand-side management will depend on customer-driven programmes. Underlying business models in this open energy market are therefore at the heart of retail smart grid activities. Energy retailers acting in competitive markets have to understand customer behaviour and their reaction to economic incentives in order to drive innovation in the development of customer oriented solutions and energy products. To enable a better understanding of the main aspects to be considered when deploying smart grids in Europe, this document covers those considered crucial from the perspective of energy retailers. The successful achievement of the European energy targets depends heavily on the existence of favourable and attractive business cases for retailers and consumers. However, success can only be achieved in close cooperation with other stakeholders, in particular distribution and transmission system operators, as well as consumers associations and vendors. Placing any one market participant in the drivers seat can significantly endanger achievement of these goals. The customer must be at the centre of the smart energy ecosystem, with other participants directly and closely interacting with them. Key to smart grid success is the seamless communication with and education of residential and commercial end users. Customers must be supported if new, dynamic customer-oriented smart grid capabilities are to be realised.

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1.2 The Role and Responsibilities of Energy Retailers


This section provides insights into the role retailers have in the liberalised energy market, and sets out their roles and responsibilities. It also touches upon other market participants that are closely linked to the retailer, such as energy traders.

The Retailer in todays Energy Value Chain


Retailers have a particular place within the energy value chain. Retailers are the first contact for the household customer regarding billing, house-moves, switching requests and energy supply. They are also the last value adding party before energy is delivered. They are also serving business customers. Although market structures vary, the main function of the retailer in the value chain is similar.

Figure 3. Traditional Energy Value chain: one-way directions (Source: Jeroen Scheer, Nuon Vattenfall) With the coming of smart grids, the world of energy will become more complex, with a bi-directional value chain coming together in a smart energy ecosystem (Figure 3). The figure also shows the distinction between parties in the market domain and those in the pure regulated domain (transmission and distribution), with metering responsibilities varying from country to country.

Figure 4. Reversing the Energy Value chain: two-way interaction of all flows (Source: Jeroen Scheer, Nuon Vattenfall) Within the smart grid, it is expected that customers will have smart devices in their homes, to provide more granular information on their energy usage and attitude, and in some cases access/control to their own production. Figure 4 depicts the complex relations that the retailer has within this ecosystem, towards the customer/prosumer and other market parties. It also displays how basic market communication flows will be required to ensure the ecosystem will work.

The place of the Retailer in Smart Grids


In a deregulated, competitive market, the utility value chain is unbundled and, instead of vertically integrated utilities, there are distinct and independent players - generation companies, transmission system operators (TSOs), distributions system operators (DSOs), metering companies and retailers, together with third parties that cooperate with these players within clear boundaries of responsibility.

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Figure 5. Simplified representation of the position of the Energy Retailer in a Deregulated energy market (Source: SAP) The TSOs and DSOs physically deliver the energy and are focused on grid stability and security of supply, with little or no relationship with the final consumer. Retailers, in combination with traders and power plant operators have the main commercial relationships with end customers. The energy value chain can be translated into a generic (simplified) EU market framework, which encompasses the most relevant energy market participants and provides the framework for the various (contractual) relationships that exist within an open energy market.

Figure 6. Simplified depiction of market participants serving the Customer (Source: Jeroen Scheer, Nuon Vattenfall) At the heart of the picture, the customer has a direct choice of supplier (retailer). The customer has no choice of distribution company since the grid is regionally determined due to its natural monopoly. Metering responsibilities vary between countries. Some give customers a choice of metering company, whereas others have the metering function within the grid manager or the retailer. Energy retailers are focused on the activity of selling energy and other (related) services and products. In an active, competitive market they depend on customer loyalty and growth, and constantly look for opportunities to deliver attractive value propositions to the market and to their customers. They will develop customeroriented programmes to ensure customer attraction. Within a smart grid, where the customer will play the central part in the energy ecosystem, both through prosuming as well as demand response programmes, the

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role of the retailer offers an excellent opportunity to further the success of smart grid programmes and improve customer service levels through the deployment of new technologies such as smart metering.

The Retailer in more detail: a crucial player in the energy market


Having placed the retailer as a participant within the liberalized energy market, the following section explores the roles of the retailer in more detail. If we refer to the ebIX organization (www.ebix.org) harmonized role model, an energy retailer assumes various roles that are instrumental in the development of the energy market.

Figure 7. Market Role RETAILER unravelled (Source: SAP) The roles that are commonly perceived as part of the market participant energy retailer will vary according to market circumstances but can be represented by the following3 4: ETSO ebIX Role Balance Supplier Description A party that markets the difference between actual metered energy consumption and the energy bought with firm energy contracts by the party connected to the grid. In addition the balance supplier markets any difference with the firm energy contract (of the party connected to the grid) and the metered production. A party that has a contract proving financial security and identifying balance responsibility with the imbalance settlement responsible of the market balance area entitling the party to operate in the market. This is the only role allowing a party to buy or sell energy on a wholesale level. A party who can be brought to rights, legally and financially, for any imbalance between energy bought and consumed for all associated metering points A party responsible for providing services directly to customers.

Balance Responsible

Trade Responsible

Customer Service Responsible Collection/Billing Agent

The party responsible for invoicing a concerned party

Table 2. Description of ETSO Retailer-related market roles The above diagrams clearly show the dynamic role a retailer has in a deregulated, competitive energy market, actually taking responsibility to balance the aggregated energy demand of his customer portfolio. Within a smart energy ecosystem, energy delivery, energy sales and consumer-oriented programmes like demand response programmes will need to be contracted between the retailer and the DSO in order to ensure smart
3 4

The Harmonised Electricity Market Role Model from ETSO European Transmission System Operators The representation of the roles of the Retail Company can vary between countries Page 17

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grid system benefits are maximized for all involved parties. These two parties are key to the successful deployment of smart energy ecosystems. Having shown the crucial roles of a retailer in a liberalized market, we analyse the key activities of a retailer within the smart energy ecosystem, in order to understand the unique opportunities provided by the role of the retailer in the smart grids. Retailers key activities in Smart Energy Ecosystems (additional to existing tasks) Time-of-Use, demand management programmes Description

The switch from supply-follows-load to load-follows-supply will be a retailer enabled initiative, in close cooperation with the rest of the value chain. Energy retailers are the creators and executors of dynamic pricing tariffs such as time of use and critical peak pricing. Creating active demand on the part of consumers will therefore be a central task taken by energy retailers in the smart grids market. Collaboration between the DSO and retailer over dynamic pricing (one on grid tariffs, , and the other on energy) is important as pricing signals on network tariffs alone will not be enough to motivate behavioural change in residential consumers. In some countries network tariffs are flat, e.g. a capacity tariff. The DSO may have little or no commercial relationship with the customers, dynamic network tariffs need to be carried out in coordination between retailer and DSO thereby improving total results for all parties including customers. Customer communication into the home beyond the meter, whether in the form of in-house-displays, educational material or information about dynamic pricing are central aspects of the future smart grid. Creative, dynamic feedback programmes to end consumers have been shown in some cases to lower overall consumption by as much as 17% with an average of 11% reduction. These communication services form a central link between the networks, the retailer and the consumer. They are part of the retailer responsibility and a direct opportunity to improve services for residential consumers. Energy retailers will be selling electricity to supply electric cars as well as electricity to be consumed at individual homes. Electric vehicles represent a unique opportunity for retailers to offer end-consumers recharging facilities with dynamic time based pricing. This should be done in cooperation with the DSO to maximize smart grid benefits. Cooperation with prosumers (leveraging the storage capabilities of electrical vehicles is one way of prosuming) will also become an important retailer driven activity in the smart grids market, both in the form of creating appropriate tariffs/programmes as well as in establishing the necessary communication/education channels to ensure program success.

Dynamic pricing

Customer behaviour change, education and communication technology

Electrical Vehicles

Interacting with Prosumers

Table 3.Key activities of a Retailer (additional to existing tasks)

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It is clear that the diversity of potential programmes and services which the energy retailers can provide to customers in the smart grid future, offers an important and excellent opportunity to ensure the success of the European Commission objectives. The next section considers in more detail the evolution of smart grids/energy ecosystems, the consumers perspective on energy efficiency, the impact of micro generation on the models, the development of successful customer-oriented programmes, demand side management, information exchange within such an ecosystem, and regulatory aspects in achieving these.

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2.The evolution of the Smart Energy Ecosystem


Whether you call it "hype" or "reality", there is no question that what is called the "smart grid" dominates conversations in the energy industry these days. In all these discussions, there seems to be three questions that have not yet been answered. One is the matter of how do you define the smart grid, i.e. what are the most important elements, secondly, when will it happen, and thirdly, and possibly more importantly, what does a smart grid look like in a deregulated market with sometimes contradictory objectives? As to the first question, the most important elements of a smart grid, there essentially seem to be three camps, of which the first two are driven by grid managers, and the third by other market parties that are involved. In the first camp are those who favour advanced metering to enable demand shifting among residential customers, in the second those who favour advanced distribution automation to make the grid more reliable and efficient. In the third camp are those who see smart grids as an ecosystem which balances the interests of the market parties involved, and the economic opportunities and physical grid limitations. The first two camps are not mutually exclusive, but currently seem to be involved in the chicken and egg conundrum - which comes first, advanced metering or advanced distribution grids. The two originate mainly from a technical point of view, sometimes translated into economic terms. The common denominator of these first two is a grid managers take on the world, i.e. it is defined according to grid managers in the centre. The third fundamentally differs from the first two. It considers market roles in a deregulated market as the foundation - consumers, suppliers, traders, generators, netering companies and grid managers. These function within a smart grid ecosystem, in which a balance between various objectives needs to be established in the economic terms, taking grid limitations into account. It places customers at the heart of the smart grid, where the other parties co-operate to ensure the energy market functions efficiently, environmental goals are met, and security of supply is ensured. Since the actualization of the smart energy ecosystem vision will not be achieved overnight, an evolution is depicted. The figure 7 shows how the smart grid and ecosystem might evolve over time and what they include.

Figure 8. Depiction of the Evolution towards Smart Energy Ecosystems (Source: Jeroen Scheer, Nuon Vattenfall)

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This expected evolution gives a time framework in which smart grids need to be placed. If the ultimate goal is to establish a smart energy ecosystem, it is by far too limited to focus on smart meters or only the grid components. Theoretically, all market participants are part of the smart energy ecosystem. In addition to the obvious ones (customer, metering company, retailer, grid manager), many other parties are directly or indirectly part of this ecosystem. Aggregators, energy service providers, smart appliance and distributed generation suppliers, home energy management solution providers, IT vendors and energy traders, just to mention a few. All these parties will focus on the same participant: the customer. In such an open smart energy ecosystem it is clear that an enormous complexity will arise, with many bi-directional information flows. A sound set of clear market rules is therefore needed, within which market players can act freely. These boundaries are not only set by the physical capacity of the grid (the grid managers domain), but also by the economic arena that is at the heart of a liquid energy market.

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2.1 The link between Energy Retailers, Smart Grids and Energy Efficiency: an emerging ecosystem
While the costs and complications of a shift in the EU's grid structure may be subject to debate and interpretation, few experts would deny that ageing power grids in many member states are in need of repair, upgrades or even replacement. The problem is particularly acute for those member states that need to construct many new large-scale power plants, whether powered by nuclear, renewable or fossil fuel technologies. The Commission argues that further liberalizing of the EU's energy market will help to solve these issues by creating the necessary market incentives to upgrade energy infrastructures for both small and large-scale energy inputs. In 2004, Brussels also mobilized some of its research and development resources in support of a European 'SmartGrids' technology platform, charged with developing a vision for the EU's future energy grids for 2020 and beyond. Energy efficiency is an important aspect in this vision. This chapter focuses on the relationship between energy retailers, smart grids and energy efficiency, and the major changes that will take place.

The role of the Retailer = resource for Smart Grid development


Basically, energy retailers sell electricity, gas and related products to customers. They offer a variety of propositions in the market, including simple supply contracts for electricity with fixed monthly fees that are changed annually, but also more complex products encompassing hourly-rated time-of-use contracts for multi-commodity. Many retailers are currently also offering products that have a direct or indirect link to energy efficiency. Of course, retailers do not do this in isolation, since they and their customers rely on the whole electric and gas system and its various players (generation, transmission, grid operators). This emerging smart grid ecosystem will be the fundamental model within the EU energy market. When we look at the current offerings related to energy efficiency, we see many limitations. Todays individual costumer consumption is not accessible at a granular level. Either it is measured in a limited number of time points during a year, or it is known through aggregated profiles. Up to now this has been sufficient to build and operate an electric and gas system but it will be totally inadequate to support a smart energy ecosystems where consumer active participation is essential. When information becomes available to customers in a granular form, the fundamentals for improved energy efficiency are present. Customers are empowered in their relationship with energy and energy management. Information can also be made available to other market participants. Energy flows and leaks can be identified, and if required, corrective measures can be taken, manually or automatically. Grid managers can use such data for grid management purposes, such as grid stability, fraud detection, power quality control and increased lifespan of deployed assets. Traders can use such data for making better decisions in trading commodities and in steering which resources will be deployed at what point in time at what price level. Retailers can and will use the data to enable new product offerings, such as demand side management, time-of-use-contracts and prepayment possibilities. And generators will be interested in this data in order to maximize their asset capacity (not necessarily centrally deployed power plants), especially when virtual power plants come into play. Customers do not spontaneously undertake energy efficiency measures. Energy efficiency and other (related) services must be offered to customers as attractive services, in this way each customer will choose his own proposition from his chosen Retailer. As the Retailer has the direct relationship with the customer, they carry a direct motivational role in achieving the energy efficiency goals this carries with it unique opportunities, possibilities and responsibilities within the immerging system.

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Deployed technology must also be in line with customers needs and knowledge levels. The adoption of new feedback technologies, based on web, mobile or similar, is significant. A retailer with a winning strategy in sustainably attracting customers keeps track of such new technologies and integrates them quickly into his propositions. Following these customer-oriented technology trends and incorporating them into attractive offerings, is a key task of retailers in a competitive energy market. Therefore retailers freedom to offer technology-based solutions to customers will become key in robust and successful smart grid deployment and should not be subordinated to the current state of the art or grid operator standards. Regulators must recognise this necessary flexibility in advance so that initiatives are not unduly limited by early decisions such as during smart meter rollout. It must be stressed here that if these customer-driven services can be naturally proposed by retailers, new players can also enter this new emerging market of energy related information and energy efficiency programmes, like aggregators and energy service companies. This market should remain open for competition. If de facto barriers are set by bad choices in, for example, smart metering, and more generally smart grid implementation, programmes will become more difficult to implement, and will thus frustrate the successful achievement of the EU energy targets. In the technology area it is also apparent that new forms of generation/energy production will be deployed. Small wind turbines or solar panels are already on the market, but micro CHPs and energy storage solutions are starting to get promoted in the market. Customers will begin to embrace such new technologies, assuming the economic conditions are right. The retailers role holds potential here as well, since they can become a major channel for educating customers and selling such new technologies. However, market development depends on national market conditions, incentives, and the extent to which solutions are supported by regulators and public authorities. Nevertheless, customers also have the power to change things, and the development in various countries in Europe and elsewhere show that they use this new power. Indeed, hidden virtual energy storage already exists, when it comes to electricity usage related to heating or cooling. Other usages can be displaced in time through automated demand response, so providing other sources of virtual storage. Since customers are at the heart of smart grid success, such technology adoption appears now as one of the major potential achievements of intelligent grids. Retailers can facilitate this development as they can improve technology acceptance and penetration through precise segmentation of customer needs, and appropriate service packages. All this depends technically on customers consumption and production information and on a trust relationship with the customers.

Energy Retailers and successful Smart Grids


Competition is possibly the best way to promote energy efficiency. In a true free market, retailers will develop customer oriented programmes and offerings, providing economic benefits and energy savings. Information availability and customer segmentation are fundamental to meeting customers and market requirements. The development of energy efficiency services is by far the greatest opportunity for retailers in the current energy market with margins under pressure, and those who approach it in the most effective way will have a significant competitive advantage. Obviously, the future will bring solutions where many players will have a role. However, the way retailers define and implement their strategy, and the context in which they do it, is of utmost importance to their future role, and its significance. This is also of utmost importance for political decision makers, as making it possible for retailers to make such services available is probably the best way to start improving energy efficiency, CO2 savings, and the like.

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2.2 Consumers Perspective on Energy Efficiency5


The deployment of smart grid technologies, in addition to ensuring that security of supply is achieved, will support the other two EU goals, which are focused on consumers: competiveness as instrument for affordable energy, and sustainable development by pushing forward energy efficiency. This chapter focuses on the latter: a consumers perspective on energy efficiency.

From smart meters to Smart Grids


When talking about smart grids and energy efficiency, the current focus is mainly on smart meters, as these are being rolled out before many questions relating to standards and regulatory requirements (and their relationship to smart grids) have been answered. While consumers expectations of the functionalities of smart meters may be unclear, customer engagement will be essential if the new technology is to be used to further energy efficiency. However, smart meters are only a first step towards smart grids - many more steps and devices will be required to ensure a successful smart grid deployment. The main driver for the successful uptake of smart meters is consumer confidence, satisfaction and engagement with the new technology, including usability. With smart meters and smart grids new opportunities appear for EU citizens, but as with any new technology, increasingly sophisticated functionality can result in unintended consequences. Consumer understanding of smart grids is still evolving but in discussions to date there has been a focus on the need for clarity in a number of key areas, in particular how to ensure that cost/benefit assessments also cover the social and environmental benefits and the potential risks to consumers. Examples of the issues now being raised by national consumer organizations include: Security of personal data and information privacy Security of meters Remote management of meters and appliances More accurate billing and flexibility of payment methods Reduced energy costs via real time information Transparent and consumer friendly tariffication Easier and more effective switching Ability to manage and use micro-generation The consumer as producer These concerns will need to be addressed in the short and medium term.6

This section is based on SMART METERS AND SMART GRIDS THE CONSUMER PERSPECTIVE by BEUC, the European Consumers Organisation (www.beuc.eu). Since this paper, further work to develop thinking on consumer issues has been undertaken by ANEC and BEUC 6 Concerns also addresed in other workgroups like Citizens Energy Forum, ERGEG, etc.
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Energy efficiency and the customer


Energy efficiency focuses on the sustainable reduction of energy usage through changing consumers behaviour in the way they use and produce energy. Many consumers are simply not aware of what possibilities exist to decrease their consumption. Therefore creating insight into energy usage is the first, crucial step in achieving energy efficiency. While several of the points raised above are relevant to the overall functionality of smart grids/meters, it is too early to completely identify the means for engaging consumers in understanding the potential benefits of the smart grid. At this stage a few issues that merit attention include: The consequences of a behavioural shift in energy consumption, and issues around demand response and time of use tariffs Closer analysis of certain general assumptions such as: statements like smart grids will be more reliable and cost effective The need for a thorough assessment of the impact on competition of smart grids Social equity Much of the debate to date on smart meters and smart grids has been industry driven, focused on technical requirements and functionality. Comparatively little consideration has been given to possible risks arising from the technology and the impact of smart metering on the consumer experience of the energy market. Included in these risks would be a failure to realize the potential social and environmental benefits that would in fact motivate uptake by consumers of new products and services, including the potential for more active engagement of consumers with their energy consumption. It is also important to consider the ability of different customer groups to engage in these new opportunities safeguards are needed to ensure that consumers are protected from any detrimental impact arising from the introduction of new functionalities. Several potential risks should be analysed. Firstly, the ability of different customer groups to engage in these new opportunities (e.g. the extent to which vulnerable consumers might pick up costs but not share in benefits because they cannot invest in smart appliances). Secondly, the cost of the technology, set against the social and environmental benefits, and how costs are recovered when the benefit is for society and not the individual consumer. The safeguards needed to ensure consumers are protected from any detrimental impact from new technology e.g. data protection and privacy issues must be considered. The creation of new opportunities like e-Mobility, tele-care services, and better targeting of (government) social assistance will also be possible. Finally, there is the question of how best to help consumers navigate what will become an increasingly complex energy retail market. Experience in The Netherlands highlights that consumer engagement and acceptance of smart meters or other smart devices are essential for the success of any rollout. If consumers do not feel the added value of the smart meters or if they have significant concerns about intrusive technology, they will rightly resist. Thus in considering the benefits and risks of smart grids and smart meters and in deciding on functionalities, data issues or the roles of the various stakeholders, it is essential to keep the consumer interest in the forefront and to learn from lessons in EU Member States and around the world, incorporating these experiences into guidance materials at EU and Member State level as appropriate. Consideration should be given to how consumers requirements can be best delivered, e.g. through a combination of legal/regulatory measures, through standards and by the provision of consumer information.

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2.3 The impact of Micro Generation


New forms or generation such as wind or solar can be delivered by large scale centralized plants. Some of the new technologies can also be made available via smaller decentralized facilities. In both cases, renewables often need to be backed up by conventional forms of generation. The term 'micro generation' refers to an array of small and medium-sized generators of electricity, including solar, wind, hydro, biomass and waste. Also included in the scope of micro generation are combined heat and power (CHP) or cogeneration facilities, which feed the heat produced during electricity generation either directly into homes or into a local district heat and power network. Proponents of micro generation (also known as distributed or decentralized generation) argue that a decentralized energy market is a prerequisite for achieving the EU's renewable energy and energy efficiency targets, though they complain that significant obstacles block their ability to compete with larger power producers (EurActiv 03/07/077). In addition, EU Member States have different rules in place governing grid access for smaller producers, which the micro generation industry says act as a barrier to the development of an EU-wide market for small-scale power generation. This chapter gives insights into the impact of micro generation on consumers and their behaviour, and the impact of micro generation on the grid.

The impact of Micro Generation for Consumers: technology and economy


With new technologies for micro generation penetrating the market, it remains uncertain to what extent these new technologies will be adopted by consumers. It forms part of the challenge to raise peoples use of energy in the home from the subconscious to the conscious, and to enable them to become part of the solution. Research shows that micro generation rarely leaves families unchanged in their outlook and behaviour. It seems that micro generation provides a tangible hook to engage households emotionally with their energy use. Consumers describe the sheer pleasure of creation and of self-sufficiency: It is like growing your own vegetables. The most striking findings from latest research is the difference in energy intelligence between mainstream households with no micro generation and those who have acquired the technologies passively, through being tenants of pioneering social housing providers. Having come from a similar starting point, the new DIY energy generators exhibit in general a wholly new grasp of energy issues and control over their energy use. However, it is not sufficient to install the technologies without an accompanying education package. The greatest effects are in households that were familiarized with their micro generators from the start and given clear explanations of how they can be used to advantage. Choosing to install micro generation (active households) versus living in a house where it has been installed (passive households) can significantly shift awareness, attitudes and behaviour above this baseline. Beyond the sheer excitement and pleasure of DIY energy generation, the impact is seen in householders shifting attitudes to energy conservation and consumption. Firstly, this shift is evident in the language used, with micro generation households being far more likely to refer to energy, power and kilowatt than mainstream households. But perhaps critically, there develops a knowledge of which behaviours are free and self-provided, versus ones that cost money and are supplier dependent.

http://www.euractiv.com/en/energy/micro-generators-lament-insurmountable-barriers-eu-energymarket/article-165201
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Many countries provide feed-in tariffs. This raises return on investment and significantly reduces payback time for prosumers. Retailers have the potential to be active in this area, since micro generation might very well be part of retailers product propositions, for competitive reasons. Together with customers and other industry players, retailers will, when economically and technically viable, promote micro generation to customers on a large scale in order to create customer loyalty and/or more profit. The so called prosumers will become an important factor in smart grids. All this will have an enormous impact on the grid. That will be covered in the next paragraph.

The impact of Micro Generation on the Grid: handling the challenge to grid reliability and efficiency
The share of renewable and micro generation in the energy system continues to grow, and with it, the need for flexible conventional generation to offset the intermittency of many renewables. Over time, this development may pose challenges for the reliability and efficiency of the energy balancing market. Not only can the grid manager experience problems, programme responsible parties are also actively involved. In addition the single buyer market for regulating and reserve power (RRP) and imbalance settlement will be heavily impacted. Power generation by means of micro installations (up to 20kWh) is by its nature unpredictable, as it is subject to weather. Controlling the supply will become a much more difficult task, especially with the increasing importance of micro production. Particularly difficult are the grid implications of increasing embedded generation. For a start, as the number of embedded generators increases, voltage loads will start to be in excess of transformer loadings. Fault levels will rise, necessitating an upgrade programme - for example, to increase circuit breaker ratings and reconfigure the network, or for sequential switching. Solutions and costs will be necessarily highly localized. One part of the distribution grid may be endowed with excess headroom capacity and have modern transformers designed to cope with an increase in demand and generation. In other parts, the local grid may be low voltage and close to its limits. In each scenario, the cost of connecting the same micro generation technologies would vary widely. Careful engineering and actively monitoring the grid behaviour is needed to control and minimize voltage dips, voltage spikes, interruptions in supply and what is known as harmonics supply ripples that are multiples of the fundamental 50 Hz supply frequency. A solution is required to tackle these more than significant issues to move the distribution grid to an active network environment one that can dispatch power, be capable of reactive power management and one that can control voltage. Two unknowns are currently appearing in achieving this: smart meters and electric vehicles. Smart meters have had a very good press and supporters would argue that they are vital to the creation of an intelligent distribution network that can cope with large quantities of intermittent power. In the longer term, say from the late 2010s, plug-in electric cars or range-extended hybrids could be connected to the grid when not in use and used alternatively as backup for load-shaving and for energy storage in times of surplus cheap electricity. With millions of vehicles on the road today and a typical mid-sized engine size as much as 65kW, this really would impose a revolution. Just one million plugged in vehicles could equal 65GW. And yet, exciting as this might be, there is not a single electric vehicle operating in this manner and feeding power into the distribution network, because the infrastructure does not exist.

Timing is crucial in Balancing Demand and Supply


If we want to keep the overall balance in the grid, which is a must, flexible backup generation, including storage and demand response, will be needed. We therefore must look at the other side of the chain: energy

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demand, and more specifically the timing of the demand. If we want to cover the demand at the lowest cost, we have to focus on measures that tackle the demand side and solutions that optimize demand response management. The introduction of micro generation must be accompanied by the introduction of new technologies like active demand response on smart grid appliances and new product offerings and aggregation techniques aimed at optimizing the timing of the consumption in order to align production and consumption. With new and innovative offers like time-of-use tariffs, and tariffs based on price signals that permit to interactively change the consumption timing and volume of appliances, the retailers have the ability to create the balance between supply (including the aggregated micro generation) and aggregated demand within their prosumer-portfolio. It is clear that dealing with micro generation and all the consequences involved should be a joint effort of retailers and grid operators, combining technical solutions with attractive and innovative product offerings aimed at controlling demand. All parties must cooperate in order to ensure efficient integration of microgeneration, and therefore authorities must set up an appropriate framework and determine the roles and responsibilities of the different market players, including the necessary monitoring requirements and control mechanisms.

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2.4 Developing Successful Customer-Oriented Programmes


Customer-oriented programmes need to bundle energy sources, technology, price and service offerings that can attract different customer groups to energy efficiency programmes offered. Retailers are the primary - and in some cases even the only - market participant that have access to all levels of optimization for energy efficiency programmes tailored for their customers. Many components are available for designing products in this area, varying from energy advice websites to very sophisticated home energy management programmes, including demand response initiatives and time-of-use tariffication. Significant benefits from energy efficiency programmes can be achieved. 1. 2. 3. 4. 5. 6. 7. 8. 9. Lower energy consumption by residential and commercial customers Paving the way to the advent of electric vehicles More efficient use of energy and further reduction of carbon emissions from the electricity industry Improved and enhanced customer services and communication Raising industry knowledge about customer needs and potential commercial and residential consumers Lower Peak consumption (cost avoided) by managing an active portfolio. Robust grid system and reduced (procurement) costs Lower cost to serve for retailers Reduction of future investment and operational costs of Europes electricity distribution grids Industrial benefits to European manufacturers by: i) Mitigating engineering and business deployment risks ii) Converging towards European technology standards iii) Validating the technology scalability and replication

Of course these benefits will not be achieved overnight, nor without investments. Within the energy industry we see some very good examples of successful customer-oriented programmes that are focused on energy efficiency. Implementation of energy management systems. Development of smart home appliances (machine to machine communication based on IP), manage them corresponding to the needs and individual preferences/behaviour of the customer. Most important for realizing these technological innovations is the ability to forecast customer behaviour and then act upon it. Enhancing the awareness of the customer for his energy consumption by developing communication tools and devices based on detailed consumption data. Implementation of demand side management systems by offering innovative tariffs that relate to the load of the grid and use the storage capacity of the customers household (heat pump; in future: electrical vehicles). Development of innovative technology, such as the combination of PV or heat pumps with smart meters etc. This combination would allow managing the consumption and the production of the residential customer and would also facilitate the integration of renewables. Cooperation between retailers and other branches like heat pump producers or white goods manufacturers.

Evolution of customer energy efficiency


Customers and retailers will not achieve full-fledged energy efficiency in one major leap. Several stages will be required before successful customer-oriented programmes will be massively rolled out. The following picture shows the several stages that are distinguishable in this evolution.

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Figure 9. Evolution in establishing successful customer-oriented energy efficiency offerings (Source: Jeroen Scheer, Nuon Vattenfall) A requirement for successful customer-oriented energy efficiency offerings is always creating awareness with customers. Without this awareness customers will not be motivated to change their behaviour. This requirement includes providing customers with access to their consumption data. Several devices can be used for this purpose. Devices are certainly not limited to a smart meter, but can also be an optical reader for a traditional meter with a Bluetooth connection to a small visual display. Offerings like Google PowerMeter and Microsoft Hohm are also successful examples of this awareness creation stage. The second stage in achieving customer awareness includes the creation of insight into energy usage by establishing consciousness of energy usage, not only at a household level, but also from individual devices. Research shows that customers are very conscious of using coffee machines, washing and tumble-dry machines, and dishwashers, if they know how much energy such a machines use. Energy advice on how to save is part of this, and various channels can be exploited, including mobile applications and touch screens. The third stage focuses on enabling customers to control their energy usage. This can be accomplished using a range of different technologies and programmes. Programmable devices which switch on and off during peak pricing periods and smart thermostats are only two examples here. The final stage in the evolution of successful customer-oriented energy efficiency programmes is the so-called Energy Services stage. In this stage the retailer provides a home area management service. Micro grid management, the inclusion of security and other home services, demand response programmes and remote, automatic real-time switching are all key features.

Requirements for success


Active participation of many parties is required to ensure customer-oriented programmes are successful. Four aspects have to be considered as requirements for this success.

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Figure 10. Preconditions for Successful Customer-Oriented programmes (Source: Jeroen Scheer, Nuon Vattenfall) COMPETITION A competitive landscape must exist in order to attract companies. In other words, companies must be able to attract more or more valuable customers by means of innovative product offerings. For this reason, the aim of the EU should be to create Europe-wide outline conditions for a non-discriminatory access for retailers and others to offer ancillary devices, service products and other smart grid appliances like active demand response that promote the use and spread of these technology driven solutions. Even more, this market should be open for more specialized parties like aggregators and energy service providers. Such outline conditions give companies an incentive to internationally develop ideas for intelligent energy management systems, and then to implement these ideas throughout their markets. The more markets are competitive, the better and the more economically smart equipment and solutions can be produced. This is due to the fact that economies of scale can be achieved when competitors try to outperform each other with customer-oriented product offerings. This is of course not limited to meter-related services, but also encompasses decentralized generation opportunities and the integration of those with competitive offerings.

CUSTOMER The customer is a precondition of success. If offerings do not appeal to them, due to price, lack of interest or other reasons, it is the retailers who have the first opportunity to offer new and attractive propositions that will motivate the customer. This is of course closely related to a competitive market, which inherently incentivises retailers to produce competitive offerings, since otherwise they will be out-of-business. And if the customer asks for products which really help him to fulfil his needs, the market will react and bring more innovations which will be attractive for the customer. Various pricing mechanisms may become part of such offerings, like time-of-use tariffs, demand response programmes and decentralized generation. Some basic elements can be distinguished here. First of all transparency for customers is essential. It must be easy for households that dispose of a relevant energy-efficiency potential and/or are interested in energyefficiency to read their consumption in real time and easy to find out the cost of consumption and behavioural choices. Secondly, ease of switching with a real time metering of the consumption, more households will focus on how to find tariffs that better fit their consumption profile and also facilitate demand side management. Improved awareness of the direct connection between behaviour and costs, leads to more energy efficient consumption. Today, in some countries the monthly feedback provides some limited information for consumers. Future development needs more exact metered information both to increase efficiency and to facilitate future innovations for house owners, such as dynamic pricing tariffs and the sale of excess solar electricity, requiring more granular information. Generally speaking, to reach energy efficiency goals and implement innovative smart grid technologies, it is essential to identify the different needs/potentials of the customers. A cost-benefit-analysis - as provided in
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the Third Energy Package - can be the first step to segmenting and approaching the mass market with tailored customer-driven solutions. It must be clear that customers will not compromise the comfort level they have achieved in exchange for more energy efficiency. Such preconditions must be taken into account when designing programmes. STANDARDIZATION A key challenge for quick adoption of energy efficiency programmes, targeted at customers, relates to standardization. At this point in time there are differences between Member States even within a small part of the smart grid, the smart meter. There are also uncertainties as to what features will be required for devices and the data exchange between devices and parties. Too much standardization could lead to include as many features as possible into smart meters. This is not a desirable approach as we do not have knowledge of the future requirements of customers and retailers; and we could not cope with these in the future as technology continues to develop. INNOVATION Another important precondition concerns innovation of products related to the energy sector. Successful customer oriented products, which are innovative and really contribute to the EU goals need as noted above a customer-friendly and competition-oriented environment. Stimulating innovations and bringing them to market should be a focal point for the EU. One example can be found in the heat market: many heat pump companies in Germany are interested in developing a combined heat pump/smart meter product, where the meter is located inside the heat pump and not outside, as usual. While these companies sell their products nationally, it is scarcely possible to sell such a product innovation outside Germany, because the model for metering in most countries of the European Union does not accommodate such new solutions. Developing successful, customer-oriented programmes related to energy efficiency is the most important raison detre for any Retailer to survive and grow. When preconditions, like an open, competitive energy market, standardization and regulation regarding the scope of grid managers, are met at the EU level, the EU goals for energy efficiency can be achieved. Retailers have an important role in this.

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2.5 Demand Side Management


Demand side management (DSM) provides a range of technical, organizational and behavioural solutions to cut or decrease electricity consumption and demand. DSM is the implementation of policies and measures which serve to control, influence and generally reduce electricity demand. DSM aims to improve final electricity-using systems and reduce consumption, while preserving the same level of service and comfort. DSM is recognized as a major solution in the fight against climate change since energy consumption and peak demand are reduced, installed capacity and distribution network extension can be avoided (or postponed), and less primary energy is required, reducing greenhouse gas emissions. This chapter focuses on DSM programmes and the role of retailers in the successful deployment of those. Ideally, energy use would be optimized by supply and demand interactions in the market. For electricity use in particular, the price paid by customers is often flat, and does not reflect the full cost of production at particular times. Electricity use can vary dramatically on short and medium time frames, and the pricing system may not reflect the instantaneous cost as additional higher-cost ("peaking") sources are brought on-line. In addition, the capacity or willingness of electricity consumers to adjust to prices by altering demand (elasticity of demand) may be low, particularly over short time frames. In many markets, consumers (particularly retail customers) do not face real-time pricing at all, but pay rates based on average annual costs or other constructed prices. Various market issues rule out an ideal result. One is that suppliers' costs do not include all costs and risks of their activities. External costs are incurred by others directly or by damage to the environment, and are known as externalities. Theoretically the best approach would be to add external costs to the direct costs of the supplier as a tax (internalization of external costs). Another possibility (referred to as the second-best approach in the theory of taxation) is to intervene in the demand side by introducing some kind of rebate.

Figure 11. Demand Side Management: achieving business value (Source: Wildan Energy Solutions) As the focus of this white paper is on the retail aspects of smart grids, we will have a closer look at the role of price response demand programmes in a future grid that will be mutually self-sustaining and self-correcting between energy users and energy providers - inherently self-balancing to ensure grid reliability in real time.

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With the beginning of deployment of AMI the development of price responsive demand as an indirect (demand based) control system can be enabled. Until now this has been inhibited by the lack of infrastructure, market settlement arrangements and appropriate retail tariffs. The flexibility of a customer can be defined as follows: how well can his behaviour be predicted (forecast) and which engagements is he willing to take to change it when requested (upfront or in real time) or encouraged to. In current market energy settlement arrangements, when a customer is able to change his behaviour, this is not reflected in the wholesale market because settlements are based upon the synthetic load profiles (SLPs). These synthetic load profiles are statistical approximations of the end-user load profiles. Because they are not the real load profiles, reflecting the actual response of the customer, the value of the flexibility of end-users is reduced. Moreover, deviations from the statistical behaviour risks being penalized, since this will create imbalances in the portfolio of the energy providers (as balance responsible). This increase in imbalance risk endangers the final value proposition towards the end consumer. On the other hand, price response demand and flexibility have a value, which includes following aspects: Markets become more competitive during peak usage hours as a result of introducing demand elasticity and improving the predictability of demand requirements and power flows during the operating day. This facilitates meeting the loss and load expectations and will provide rapid response to emergency shortage conditions to preserve short term reliability. In return, demand elasticity has a positive impact on the price volatility on the wholesale market. A large amount of price responsive demand can predictably respond to change in wholesale prices. Dynamic and time-differentiated retail products like critical peak pricing allows retail tariffs to rise when the wholesale market price exceeds at threshold level. Customers who face critical peak pricing or real time pricing and respond to those prices can provide valuable reliability services to the local control area Reduction of the frequency and magnitude of energy scarcity events Avoidance of capacity requirements and energy payment during high price conditions. Predictable price responsive demand could enable regional grid operators to defer more expensive re-dispatch options and reduce transmission congestion costs. Demand increase in reaction to low wholesale prices, optimizes the use of renewable energy sources like wind and sun and reduces CO2 emissions, especially in conditions of over-supply. Flexible demand also decreases the need for large reserve capacities to compensate for variable electricity production from renewable energy sources. Given these large benefits, the question arises of what is to be done in order to reach that potential. There are three sets of obstacles: REGULATORY The reliability benefits of customers response to market prices will become increasingly important. In the long run, the distinction between reliability and markets will diminish as system operators rely more and more on markets to obtain reliability services. Specifically high prices will signal impending reliability problems. A focus on prices rather than on strict reliability rules will provide much more flexibility and incentive to customers to save money, automatically improving system reliability. In this context the main task of regulation is to make sure that existing market rules for energy markets do not contradict the rules needed to encourage consumer response to timevarying prices. Decisions on metering and related services (billing and access to meter data) are also critical to expanding price-responsive demand. Market energy imbalance and settlement arrangements should be based on real load profiles (coming from the AMI), instead of estimated statistical load profiles (SLP). The arrangements should include transparent assignment of responsibilities in order to guarantee benefits for all market parties over the value chain. For instance, active demand as a means of stabilizing a suppliers portfolio should not lead to penalisation of that supplier (or one of the parties supporting him with balance services and responsibilities).

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TECHNICAL The technical components necessary for dynamic-pricing and voluntary load-reduction exist and have been already applied in various settings. But the industry has not yet evolved to the point where the necessary equipment and communication packages are readily available. There is also a substantial need for cost reductions. The technical components needed for these new services have to be standardized and massproduced in order to reduce costs and increase performance. Furthermore, an approach that combines the use of dynamic system planning and operation of transparent forecast demand respond curves which reflect a statistically predictable relationship between prices and demand have to be carried out. INSTITUTIONAL Perhaps the greatest challenge here is the lack of experience with marked-based prices that vary from hour to hour and with retail customer incentives that encourage economic response to these price changes. Historically, system operators have focused on the supply side and ignored the demand side of the equation. System operators need now to broaden their thinking to accommodate the unique characteristics of customer loads. In addition retailers need further market research to understand what customers want from their electricity supplier and how customers might respond to the different flexible products and services. DSM relies on technology and behaviour. Continuous information and education programmes are necessary for the development of efficient systems. Both of these aspects need to be maintained, stimulated and improved. DSM is not only good practice for reducing energy consumption and improving systems efficiency; it has also side-benefits such as improved welfare and comfort for end-users. In order for DSM to be implemented, the different players active in the smart grid/energy ecosystem will have to cooperate and interact on a major scale. Retailers are required to act as active balance managers, their focus should be the establishment of stable portfolios, which in consequence guarantees the grid stability. Needless to say, accurate forecasting is of vital importance here. Consumption should be better predicted and coped with through active demand management. The ICT (information and communication technology) infrastructure of the smart grid will allow for a reduction of this balancing services cost. Retailers could introduce strategies like incentivizing and/or penalizing responsible loads in times of imbalances/peak hours. Of course, as virtual utilities and other aggregation based service providers will become active players in the energy market (virtual power plants), they also should be involved in balance management, as they too have a direct effect on loads and generators throughout the grid, and can be considered as one coordinated entity.

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2.6 Information Exchange in the Smart Energy Ecosystem


This chapter focuses on the challenges regarding information exchange within a deregulated, open EU energy market involving multiple active parties like grid managers, traders and suppliers, while implementing smart grids. Each of these parties, co-operating in a smart energy ecosystem, will have its own, possibly contradictory objectives. Information exchange is of crucial importance to ensure that these contradictory objectives will not lead to decreased security of supply, less-functioning of the open energy market, nor endangering the fulfilment of environmental goals. This equilibrium can only be achieved when the industry as a whole, with all its participants both on the grid side and in the economic arena, is able to create industry wide: Data definitions of both semantics and syntax Standardization of communication technologies Trusted data stewardship across many parties Service level agreements and service level management that can span the value chain. We should look for a model that facilitates and enables the required equilibrium between security of supply on the one side, and having a fluid energy market in which environmental goals are achieved, on the other. We show here a sketch of what such a model could be, and in particular its requirements in terms of information flows.

Growing information dependency requires drastic rethinking of smart grid fundamentals


Smart grids will only be a success and socially accepted as such if they achieve energy efficiency and renewable energy integration, while still offering consumers their required level of home comfort, and while leaving retailers able to develop sustainable business models. The latter is largely dependent on the possibility for those retailers to successfully introduce new and attractive products and services. These products and services will be based on new customer premise based smart meters, smart energy gateways and connected (smart) appliances and devices. These new appliances and devices will offer, support or use capabilities like remote control, local storage and micro generation. In order for the new products and services to work with these new capabilities in the home, an accurate and timely information and interaction is necessary. In turn, information coming from the customer side through these services will give rise to further (commercial) opportunities. These new capabilities supported or controlled by the retailer need to be managed in such a way that the grid can remain as stable as possible and can continue to provide the users of the grid with the expected flexibility. These seemingly contradictory objectives from suppliers and grid managers need to be resolved through new balancing mechanisms, which will be heavily dependent on the timely availability of accurate information. The diagram below shows how the demand side (i.e. the customer, who can be both consumer and supplier of energy) will be balanced with the capabilities of the smart grid and the requirements of the grid operators for protecting the grid.

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Figure 12. Creating Equilibrium in the Smart Grid between demand and grid sides (Sources: Martijn van Glabbeek Nuon Vattenfall)

Types of information flows: determining the right level for the various parties
In the smart grid, both production and consumption need to be measured at millions of access points to the grid, and transmitted for processing to all required users in the ecosystem. In order to achieve the objectives of the supplier as well as the grid manager, this should be done at all levels of energy demand and supply, since all possible energy flows can have a different tariff and/or contractual relationship. There are at least two main types of information and process flows (near) real-time and (more) longer term. Both flows have two main perspectives. That of the grid, and of the capacity it needs to provide to support demand and supply. o In a smart grid, knowing where the capacity is needed and at what time, is increasingly important, because of more users, intermittent energy sources and unpredictable behaviour. That of the demand and supply of the energy commodity flowing through the grid. o In the smart grid, where the commodity is being produced and consumed, by whom, at what time, is also increasingly important (volatile, intermittent and distributed). The volatility and scarcity of grid capacity, and the energy commodity are important factors that determine the price which is the main interest of the supplier and his customers.

Information dependency in the Smart Energy Ecosystem: where Demand and Supply meet in an open energy market
The economic arena of the smart energy ecosystem is where existing competitive operating market parties meet, compete and work with new market entrants (like aggregators and energy service providers). In this arena, demand and supply for all energy commodities (electricity, gas, heat) and grid capacity are matched, balanced and translated into market prices.

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The arena itself is bounded by a set of laws, regulations and social pressure and public opinions as well as customer expectations that need to be taken into account by the commercial parties in the arena when creating sustainable business models. The economic arena needs sustainable business models, and these models need to be fed with information on the one hand about the grid, coming from the grid operators and protecting the stability of the grid, and on the other hand about the demand and supply of commodity, coming from consumers and suppliers. The economic models underlying these business models work both in the long and in the short term. An overarching law in energy sourcing is that accurate long term prediction is better than steering in the short term. However, because of the increasing volatility, this becomes more difficult or even impossible. More price flexibility up to real time pricing will restore a part of the optimization of actual demand and supply. This however still leaves the possibility of an imbalance (in case the business model cannot comply fast enough), in which case it is necessary to protect the grid more directly, direct (near real time) bi-directional communication should be enabled. Figure 12 shows an example of how the sustainable business model requires different types of information exchanges. Each layer communicates with adjacent layers; sometimes direct interaction between non-adjacent layers is necessary.

Figure 13. Balancing Customer side demand and supply within the Physical boundaries of the grid, in an economic arena (Sources: Martijn van Glabbeek Nuon Vattenfall)

Challenges in information exchange: a multi-party system


Measuring, transmitting and processing data quickly and accurately is a challenge of organisation and technology in itself. In an unbundled, liberalized market, where the data needs to travel along a chain of users, who each have their own interests and implementations in handling the data, this is even more challenging. Figure 13 shows an example of the new kinds of relationships and data exchanges that will appear in the smart energy ecosystem.

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Figure 14. The new EU energy world depicted8

DEMAND RESPONSE SERVICE PROVIDER (DRSP) The DRSP, in some literature also referred to as the aggregator9, is dependent on aggregating consumption or demand information in real time, engaging in real time with (sourcing) parties, and then dispatching control signals to consumers. This calls for a real time information exchange process comparable to processes that currently have been implemented only between system operators, large energy sourcing providers and central production units, but now in vastly greater numbers of very small responding units. In the mass consumer market, a comparable (near) real time information exchange could not be handled by current (smart meter infrastructure) technology, nor by the current mass market messaging or web services that are used for collecting metered data or sending commands to a smart meter or between market parties involved. In Figure 14 this is indicated with the yellow process flows. REAL TIME PRICING FOR CONSUMERS In the case of a real time pricing programme for consumers, or even a more flexible pricing model, offered by a retailer, it is necessary that the consumer is sourced and settled in real time as well. Current market models, based on fixed synthetic market profiles do not allow for this. If they would, and the retailer would start acting effectively as a trading & balance responsible partner for these customers via its own sourcing partner, this would again greatly increase the extent of (near) real time data exchange and processing. In Figure 14 these are indicated by the white process flows.

Legend: Retailer = Thin Retailer (Balance Supplier, Billing Agent, Customer Service)/ Sourcing Responsible = Balance Responsible + Trade Responsible Party / VPP = Virtual Power Plant / Ug = Microgrid. Third Parties are new entrants to the market like pure Demand Response service providers, or data services companies
9

See also ADDRESS is a large-scale Integrated Project co-founded by the European Commission under the 7th Framework Programme: http://www.addressfp7.org
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Figure 15. Examples depicted (Sources: Martijn van Glabbeek Nuon Vattenfall)

In conclusion, many new products and services, like demand response and real time pricing, require a direct interaction between the retailer and the customer, not only in accessing, processing and forwarding the data, but also for receiving and processing events from the home and grid infrastructure and sending control commands to energy producing and consuming units. In the near future, this kind of connectivity and interaction will be possible directly with smart appliances and smart devices using or producing energy, and the smart metering infrastructure and intercompany data exchange supports such a model. Until that is feasible, it is thinkable that the smart meter or the related home energy gateway acts as a proxy, on the more basic level of home or the point-of-delivery. In that case, smart devices and appliances will not be directly controlled from a distance, nor bid or sell their energy demand and supply directly to the market. However, they will possibly respond to general (price or simpler control) signals based on which they, or the user, can actively adjust their behaviour. This is still a heavy requirement for current smart meters, smart meter infrastructures and the interaction in between companies in the value chain. If we want to stimulate viable, sustainable business models based on the smart meter, support for this kind of interaction is a future necessity. Having said that, we need to look at a business case for having access to data as well. It would be easy to say that we should measure everything that can be measured, at every connection point on the grid, at the finest granularity and detail time level, communicated in real time. However, the vast amount of communication bandwidth and data storage that would be required would call for huge investments in technology that will not be possible for the existing commercially operating retailers and certainly not for new entrants to the markets. Detailed information at the highest granularity (device level) and the highest resolution (quarterly hour to even ten-second intervals) is costly, and may not be needed in any situation or for any purpose. It is tempting
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sometimes to say that we want the data now, in case later we might find a need for it. But in order to cope with the huge quantities of data, we need to be smart about this as well. The industry needs to create an information model where we can identify the right types and level of communication needed: what do we need to communicate about, from whom to whom, and within what framework, what will be the optimal point to measure, what granularity of measuring is optimal, and what communication lags are acceptable? For each purpose this has to be examined, weighing both the benefits and costs of data availability. And finally, in the smart energy ecosystem, it needs to be very clear to whom the data belongs, who can access and use it for what purposes, and how do we deal with inherent issues of security and privacy in a much more complex and high volume information sharing scenario. SECURITY Security is a crucial topic which extends from the grid infrastructure right into customers homes. It is imperative that appropriate security measures are in place to protect customers and our infrastructure. The introduction of new in-home technologies connected to the smart grid introduces many new points of intrusion into our systems and infrastructure. Security must be designed in from the start and regular (penetration) testing undertaken. DATA PRIVACY Privacy of data is a widely understood issue. But when we introduce control of in home technology beyond the smart grid/smart meter we are likely to see even greater scrutiny in this area. Is it reasonable to expect customers to manage their own complex data, equipment and energy use and make decisions in a near real time environment? This would secure the customers data, but is a complex affair for the customer to deal with. Perhaps it will be more likely that a 3rd party, acting with customer permission will use the customer data to provide a management service. But in that case, the privacy of the customers private home and life need extra attention. ACCESS AND CONTROL Who has control in the home? This is a key question about who actually has the right to control in the home. This is a challenging question that has yet to be resolved in many markets. Obviously, the retailer has the commercial relationship with the customer but it is foreseeable that retailers and distribution companies will have competing demands of the network as described before. A retailer may wish to sell more energy over a network but the distributor needs to protect that network from overload etc at some point those competing priorities will clash and need to be resolved, but we need to take care that the customer does not get mangled in this process. What we have learned in some examples of smart meter introduction so far is that we need to work from a basic assumption that the data related to the production and consumption by an end customer belongs to that end customer, as well as the rights for access and control to functionality in the home beyond the meter. For the customer to accept and quickly adopt new products and services, the security and privacy aspects of both data and control need to be handled prudently, in order not to lose the (already fickle) trust the consumer has in corporations using private data and gaining access to a customers personal domain. To secure the continued trust of the customer, a regime of data and control stewardship across the industry is necessary. An independent party or authority could establish the rules of the game and see to it that the game is played according to the rules. Parties acting in the ecosystem can gain a higher level of trust by demonstrating that they implemented the necessary means to act accordingly and by showing clearly that they do so continuously. This will offer to the customer a high level of transparency and control over his or her data. At the same time, it will ensure to the parties interested or requiring that data and/or control, that it is and remains available to build economically sustainable business models on.

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2.7 Regulatory challenges in achieving Smart Energy Ecosystems


The deployment of smart metering in Europe and the evolution of smart grids and smart energy ecosystems will have far-reaching implications for the energy industry, as well as for its regulation, which determines the industry context for much of it. Regulators at national and European level are already giving consideration to certain key aspects concerning regulation of network companies. However the implications of smart grids are much wider and are considered below. NETWORK PRICE CONTROLS AND INVESTMENT Among the issues of immediate concern for regulators and network companies are: The regulatory approach to the development of smart grids by transmission and distribution network operators. How to incentivize smart grids within existing price controls on network companies. The functionalities required from smart grids, and ensuring these functionalities are taken into account in smart meter deployment, which is generally further advanced. The possibility of differences of approach between Member States (or even between different grid operators within a Member State), and how far co-ordination between Member States is desirable. Whether industry itself can respond to the challenges in this area, without the requirement for formal regulation. The role of EU standards in this, and if further standardization is desirable, the time implications of this. While these issues directly affect the regulated companies, they also concern stakeholders more widely, in particular energy retailers who will typically be required to reflect increases in network costs and to plan for the introduction of smart meters. INDUSTRY SYSTEMS The introduction of smart grids and smart metering systems will require the transformation of industry systems which support the competitive market. Metering data will be more immediate, in greater granularity, and this will have implications for metering and billing systems, as well as facilitating customer switching and other customer processes. In addition it will facilitate changes to the present balancing and settlement systems, which underpin the competitive market. In these areas too, energy suppliers are major stakeholders. Their company systems are geared to interface with the systems offered by grid companies, generally distribution companies, and with smart metering the amount of data will increase significantly. Careful consideration will need to be given to architectural and design issues, to testing and implementation. In most Member States, regulators have oversight of the industry systems provided by the network companies and the industry rules which they embody. The radical changes to these systems prompted by smart grids and smart meters will call for significant regulatory resources, as well as the active participation of industry players. THE COMPETITIVE MARKET As noted above, the nature of future network regulation and the overhaul of industry systems will affect not just the regulated companies themselves but stakeholders more widely, in particular energy retailers. However, there are other critical concerns for energy retailers introduced by smart grids. These include the extent to which it will be possible for retailers and others (like aggregators and energy service providers) to create and offer innovative services, through differentiated products. In addition, as technology evolves there is scope for further technical development and innovation in products or services.

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The role of in particular distribution companies needs to be taken into account to ensure services are offered on a truly non-discriminatory basis. Another issue at hand here is the question of how to create a market for energy efficiency services in a competitive environment. The development of schemes which give the supplier the incentive to encourage reduced energy consumption will be one of the key features in competitive energy markets. MICRO-GENERATION AND ELECTRIC VEHICLES In the chapter on micro-generation the impact of such new technologies and devices is outlined. The regulatory aspects that will allow micro-generation to leap forward include the incentives necessary to encourage these applications, in particular, the tariff offered to customers for self-generated exported electricity. Also whether electricity used for transport should have a different tax treatment compared with conventional use; if so how this will be differentiated and accounted for. DEMAND RESPONSE AND DEMAND SIDE MANAGEMENT As have been stated in the previous chapters on demand side management, the open energy market must be enabled to successfully roll out such programmes. Several regulatory aspects need to be taken into account for this: The design and operation of retail time of use tariffs and scope for supplier flexibility. The design and operation of balancing and settlement processes. The market model underpinning demand side management, and the nature of retailer and customer involvement e.g. it could be a service provided by the retailer (in exchange for a reduced retail price) with the retailer aggregating this capability and selling it to the grid operator. The circumstances under which network companies are permitted to exercise direct control of a customers supply or individual appliances within the home.

THE RETAILER PERSPECTIVE SOME PRINCIPLES Having considered these major challenges, retailers believe that the aim should be to establish a stable regulatory and industry framework. It is up to the EU and its Member States to establish a regulatory framework in which the smart energy ecosystem, depicted as a multi-party system with various interests and objectives, can evolve towards the required state, in line with the goals set forward by the EU. However energy retailers suggest some guiding principles for the regulatory framework, which are outlined below. Regulation should Clearly distinguish smart grids from smart meters in terms of economic assessment (cost-benefitanalysis as proposed in the Third Energy Package) Ensure that investment is smart grids and smart meters is efficient and not gold plated Be conceived and developed within existing structures at national, regional and EU level Identify and resolve regulatory barriers or disincentives for smart grid development Recognize and trust industry to develop the necessary detail, within a high-level framework, rather than requiring detailed ex ante regulation Commit the necessary regulatory resources to support and help guide industry development Recognize the importance of wide stakeholder involvement not just consultation but participation in joint industry platforms overseeing industry system design and development Maintain the importance of non-discrimination as regards the services available to system users Give priority to ensuring maximum scope for retail differentiation and innovation in the services to be made available Maintain the principle of the supplier being the primary point of contact for the customer Give retailers the customer-facing role in demand side management and demand response, with intervention by networks only in emergency situations.

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Regulation should also play an active role in monitoring the whole evolution from today to 2020, considering whether the number of customers who accept the new products and services will enable national energy targets to be achieved.

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2.8 Customer-oriented Smart Grid Pilots: MeRegio and Model City Manheim
Although the Smart Energy Eco-System might seem theoretical and not based on practical experience, this is not the case. Many good practical examples are known and were used to establish this white paper. One of those examples is MeRegio. Another is Model City Manheim. This chapter outlines both pilot projects.

2.8.1 MeRegio Project


Within the MeRegio project the whole value chain is represented, including: intelligent household appliances (e.g. fridges or freezers), decentralized control devices, smart meters, the installation of new secondary technique in the grid, the use of meter data for improved network control and finally the better integration of decentralized generation units into the existing energy system, is examined. Different market platforms are used to offer opportunities for new business relations between the individual market players.

The vision: The customer as an active element of the smart grid


The changes in the energy market offer tangible advantages to the customer. This will be achieved through a variety of services. More flexibility in the load performance of consumers and generators through tariff incentives and technical control mechanisms will enable increased integration of renewable energy and thus reduce the costs for expensive power plants to balance energy and for energy storage. The same is true for the reduced necessity of grid construction and extension. On one hand, innovative energy usage like heat pumps and e-mobility require a well-directed control of local loads; on the other hand, exact knowledge of grid loads facilitates decisions about grid construction. And where an unnecessary grid extension is avoided, the customer profits from reduced costs in the long term. Apart from these financial aspects an intelligent communication network enhances security of supply since it offers more possibilities to resolve faults remotely. The environment profits as well. The closeness between generation and load without long-range energy transport, the use of renewable energies, the possibilities of combined generation and the replacement of energy storage through intelligent load control are efficient levers in the fight against CO2-emissions.

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Figure 16. Graphical representation of the MeRegio pilot (Source: EnBW)

On the customer side, demand response mechanisms are introduced via dynamic tariff and efficiency signals for intelligent household appliances. These dynamic tariffs are being tested with regard to their influence on the entire value chain (cost based approach), and designed and adapted to customer requirements (market based approach). The needs of both the B2C (household) and the B2B (industry, business and local authorities) segments are being considered. To better understand the requirements of industry, business and local authority customers, energy consulting and detailed electrical power reading and analysis have to be offered. This helps the customer to identify potential for efficiency improvement and energy savings. It also helps the customer to participate further in the market platform. The market platform is intended to enable the trading of energy products and services. In various sub market places different mechanisms to align demand, generation and network capacity are being applied, e.g. dynamic tariffs, to motivate the consumers to move their load, or auction models that combine the interests of several decentralized generators in trading their generation capacities.

Changing role of retailer required


It is already clear today that the role of the market participants must change in a future energy market in order to be able to offer successful customer oriented programmes. The classic retailer has to become a demand side manager who offers his customers an optimization of their energy supply, generation and own consumption. Customers who generate or draw much power get the possibility of actively participating in the energy market. The spectrum ranges from co-op structures to information-technical agents who are able to handle even small energy transactions economically on the electricity market. Time variable tariffs are in place for both the consumer and the generator. For the optimum use, an energy-management-system is communicating with intelligent appliances such household appliances or heat pumps. New assets, e.g. energy storage systems, become profitable and will be combined with corresponding tariff models. Frequency and voltage control will - as system services - most likely remain the task of the grid operator. Decentralized generation will partly take over the role big centralized generation plays in
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todays system and prevent local network shortage. To smoothly handle supply shortfalls in the future, flexibilities in generation and load can be used.

The success of the system is based on four key elements


1. A motivated and well informed customer enabled by the retailer who has the best customer access and is therefore responsible for all customer relations: management of production (e.g. PV generation); access to the appliances of the customers (e.g. heat pump; home appliances); access to the energy storage potential of the customer (e.g. heat pump, electric vehicles) 2. Innovative key technologies as a technical basis for the promotion of decentralized generation and the comprehensive introduction of energy management systems to control loads 3. A powerful information and communication infrastructure that connects the physical infrastructure with the different sub-markets and allows adjustments to the specific market situation in near real-time 4. Market places and mechanisms in which all participants of the energy market are brought together for an optimal allocation of energy quantities and system services (e.g. energy retailers, decentralized generators, customers and system service providers).

2.8.2 Model city Mannheim Implementing a decentralized energy management system in homes
The E-Energy project Moma was initiated by MVV Energie AG, in Mannheim. Moma seeks solutions to the challenges brought by the integration of intermittent renewable energy sources. Using decentralized energy management in houses, Moma investigates the feasibility of an equilibrium between local consumption and local supply of electricity. Part of the solution, proposed by Moma, is to integrate demand-side management as an active part of the grid, by incentivizing the use of electric devices at specific times and making use of the thermal storage capabilities of certain devices.

Figure 16: Source and Label from MVV

The first phase of the Moma tested the operation of smart meters connected to a web portal in 20 households, in order to examine technology acceptance and the feedback function. In the second field test, scheduled to start in October of this year, Moma expands the analysis to test the functioning of a bidirectional energy management interface (BEMI), named Energy butler by MVV (Fig. 1) with 200 households which are also equipped with a smart meter and a web portal.

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The Energy Butler serves to optimize the schedule of high-demand devices washing machine, freezer, fridge, dish washer - based on the tariff design received via a broadband power line used for communication with the DSO. On an hourly basis, the electricity rate takes on either a high or a low value, and is a function both of EEX price and forecasted availability of solar and wind energy. The high tariff is usually associated with scarcity or absence of renewable energy generation. Consumers have the ability to override the decision of the energy butler by a simple click on the web interface. The purpose of the second field-test is to examine consumers interaction with the Energy Butler, the communication between all elements of the smart house (Fig. 2) and the impact of flexible demand on the grid stability. Ultimately, the results of the study will shed light on the load shifting potential that can be achieved through the use of the Energy Butler. The third and last field-test of Moma planned for 2011, will be of larger scale, with 1.500 residential or commercial customers. In addition to the elements of the two previous field-test, this will integrate microgenerators and larger thermal storage units.

Figure 17: Source and Label from MVV

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2.9 Smart grid perspective from technology providers


Introduction and Vendors involved In the area of smart grids we can find different categories of vendors supporting technology of the grid and the interaction of the different actors in the grid among the whole value chain. Each of these categories is responsible to deliver technologies, products and services that meet defined standards for functionality, reliability, interoperability and regulatory compliance. The main problem for the vendors is not the innovation itself or the significant changes in the grid (e.g. massive decentralized generation and storage) and the energy market (e.g. new actors like aggregators and ESCOs, new business models) but the lack of a harmonized standard framework for technology, interoperability and market/business models. As further described there are already a lot of activities in the area of standardization and the development of new business models with good results but there are still several gaps in standardization and also harmonization activities to be done to get a stable framework for the vendors which they can use as a secure foundation for their developments. This lack is a main obstacle to a massive deployment of new technologies and systems. So far it is the domain of courageous innovators. Industry initiatives like this retailer initiative or the EEGI bringing together R&D, industry, customers and regulators can foster the harmonization process in a high extend. From the vendors perspective the following clusters are engaged in the smart grid area. Electric Power Grid Equipment Ancillary Services Metering and Billing Information Communication Technologies (ICT) Communications Provider Home Appliances Building Automation / Energy Management Electric Vehicles

Changes to cope with in technology, business models and customer engagement Equipment for grid users gets more and more smart. Further technology developments and advanced ICT will result in more sophisticated and intelligent equipment being used in the smart grid. An open standards based approach will be the key for market development. New business models and service offerings will evolve as actors take advantage of the new information that results from the new data sources that become available. The ability of actors like retailers to better understand their customers needs, their usage behaviours towards electricity, where efficiencies can be gained within the system etc. will enable new innovative business models and service offerings to be delivered to consumers. These in turn will promote further development in new technologies, products and services. Examples of such new opportunities that exist today range from investments in new data analytics systems for data mining in order to identify new consumer offerings, new infrastructure management products for distribution systems, home energy management, to new energy service companies (ESCO) offering new contract based products to consumers based on their individual usage pattern of energy. The services related to electric vehicles will also drive further innovation in terms of technology and business models, enabling mobile energy prosumers. While business models are still being formulated (e.g. in the ADDRESS project), the physical impact of millions of electric vehicles participating as consumers and storage actors in the grid needs to be fully understood and will further add to the complexity of the smart grid.

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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe Communication service providers will have to offer a higher service for the electricity industry needs. Given the critical role of the electricity supply, communication service provides must ensure that their services deliver the required quality and reliability. Needs for standardization and regulation At the moment there are many candidate standards able to cover some of the interoperability needs in the smart grid, but none of these standards have a complete data model for distributed energy resources, equipment condition monitoring data, geospatial location, and other information that will underpin smart grid technologies and applications [NIST]. In particular, information describing supply and energy demand profiles need a standardized format . Also the communication layer is fragmented and often dominated by legacy and proprietary protocols. While smart grid technologies continue to develop, without well-defined and technology-neutral interoperability standards, further innovations and opportunities for large scale deployment are limited. This can even hinder a real opening of the energy market as this will force end-users to stay with their specific service providers. The standardization process itself could become an obstacle: the developing of specifications could last too long. Moreover, without a real international consensus from all the stakeholders involved, the critical mass will not be obtained and the standard would remain another set of specifications, without full application in the real world. For an understanding of standards and regulation we have to identify the borderline between regulation and standardization in the different levels in the SmartGrids: The technical level (e.g. covering SCADA, smart metering, communication with field equipment, communication with the HAN ) The business/commercial level (e.g. communication and cooperation among stakeholders (contracts, offerings, orders, invoicing, bilateral or via data hubs, as well as tariff models, pricing models, market models, fostering of investment and prosumer participation, providing incentives/cost recovery) On both levels cyber security and authentication is relevant This is also shown in the following figure:

Figure 18. Different layers in the Energyweb concept [Source: ENERGYWEB]. In the technical area we act fully in the world of pure standardization which is already covered and handled by the standardization bodies worldwide supported by different industry organizations

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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe like ESMIG, in the EU and NAESB in the US. Here we can see a good progress with very good results. The remaining gaps are identified and the future work is scheduled. The main contributors / resulting documents are: NIST, smart grid Interoperability Standards [NIST] IEEE, P2030 [P2030] IEC, SmartGrid Standardization Roadmap [IEC] NIST, Guidelines for SmartGrids Cyber Security [NIST Cyber Security] UCAIug , Home Area Network System Requirements Specification 2.0 [UCAIug] In the EU there is a clear mandate to CEN/CENELEC/ETSI: EU Mandate M/441 on smart metering from march 2009 focusing on an open architecture for utility meters, communications protocols (bi-directional), interoperability, secure data exchange, allowing advanced information and management & control systems for consumers and suppliers. The main problem here is the harmonization of the existing sets of standards (and standards to come) for the use in the EU to provide a stable framework for the software and technology vendors to develop required ICT tools and technology to secure their investments (also to enable mass production and to reduce costs which will help in the large scale deployment) In the commercial area it is different, as we have to cope with completely new business models and roles in the market which have a much higher variability beside new technology. Here we are still in the phase of pilot projects like the EU project ADDRESS, the e-energy model regions in Germany or the new EEGI initiative. There are several approaches that are explored and investigated but we are still far away from market standards. Here we also find organizations working on standardization like ebIX (together with ENTSO-E) in the EU or OASIS in the US beside the activities of regulatory bodies like ERGEG, ACER in the EU and FERC, NERC in the US. Their main work so far with regard to market models and interaction was focused on regulation and modelling for the liberalization of energy markets and regulations for the remaining monopole areas; regulations, policies and market models to foster renewable energy generation and energy efficiency; positioning for requirements in the smart grid area and for the roll out of smart meters. Even in the above areas we are still in a state of national regulations and market models. There are a few countries with liberalized metering markets (e.g. UK, Germany) beside regulated metering markets (which will require a different approach when it comes e.g. to implement energy services by aggregators). Also the rules and the extent of market communication differ from country to country with a first region (the Nordic countries) that started a process of harmonization. In the commercial area there is even a competition between standardization approaches. So there is some discussion e.g. in Germany positioning CIM against ebIX standards. This is also mentioned in [IEC]; that there is an interest for further development of the (technical, assetoriented) CIM-standard towards general market communication. The main areas for standardization (regulation) in the commercial area when it comes to deployment are: The extension and definition of new market and business models including appropriate business communication and (logical) interfaces In terms of interfaces [NIST] points out the necessity for standardized semantics for the exchange of messages: Common pricing model to traverse the whole value chain including price, currency, delivery time and product definition Common time synchronization and management Common semantic model (to unify models of CIM, IEC61850, ebIX) Common meteorological and geospatial models Common scheduling mechanism The definition (regulation) of access to this new markets
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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe The implementation of communication hubs and central market platforms (Regulation) of security and privacy for the final customers Definition of products and services Policies for fair split of costs and benefits and recommendations for funding New market models and interfaces are a prerequisite to develop standardized business processes and use cases that can be used by the market participants in a highly automated way. Otherwise the business will be restricted to few manual cases (as experienced in the liberalisation of the energy market, e.g. regarding change of supplier process). In the existing business models there are already good approaches that can be used for a generalisation. An already very generic approach is given in the architectural model of the ADDRESS project [ADDRESS]. Similar approaches can be compared from other R&D projects to derive a generic market model for DSI (Demand Side Integration = DSM + DR) and to further develop the existing generic ebIX model.

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A glance on different required solutions and technologies and their maturity: The operating system for the smart grid Vision from the SEESGEN-ICT Thematic Network

Smart appliances

Interoperable
Electrical vehicle

Distributed generation

Demand Side Service


Management System

Smart meters Web services User interface

ICT offers

Standardization

Regulatory framework

Figure 19: The Demand Side Service oriented Platform a first vision of an overall gird operating system [Source: SEESGEN-ICT] Required applications for the aggregator business (According to thematic Network SEESGEN-ICT survey deliverable D5.2) Young (pilots, field tests) o Variable output production forecast o Consumers response forecasting o Customer portfolio optimization Mature/existing o Market price forecasting o DER operation and trading optimization o Load forecasting

[ENERGYWEB], no author, untitled, from networking session at ICT2008 event, Nov. 2008, Lyon available at: http://ec.europa.eu/information_society/events/cf/ict2008/itemdisplay.cfm?id=679 [SAP], internal presentation, author Stamatis Karnouscos

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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe [P2030], IEEE P2030 Draft Guide for Smart Grid Interoperability of Energy Technology and Information Technology Operation with the Electric Power System (EPS), and End-Use Applications and Loads, available at: http://grouper.ieee.org/groups/scc21/2030/2030_index.html [IEC], IEC Smart Grid Standardization Roadmap, June 2010, SG3 working group [NIST Cyber Security], NIST Guidelines for Smart Grid Cyber Security, Vol 1-3, NISTIR7628, August 2010 [ERGEG], Position Paper on Smart Grid, draft, public consultation and conclusions, E09EQS-30-04, E10-EQS-38-05, E10-RMF-23-03 [UCAIug], UCAIug Home Area Network System Requirements Specification 2.0, August 2010 [ADDRESS], Deliverable 1.1: ADDRESS Technical and Commercial Conceptual Architectures - Core document. Available on the project website http://www.addressfp7.org [NIST], NIST Framework and Roadmap for Smart grid Interoperability Standards, Release 1.0, January 2010 [SYSGEEN-ICT], EU-funded Thematic Network, Supporting Energy Efficiency in Smart GENeration grids through ICT

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3. Conclusions and Recommendations


This section of the document covers conclusions and recommendations that are drawn and proposed. First it will present the conclusions we draw regarding the crucial role of the consumers and the energy retailer in a successful deployment and evolvement of the smart grid and energy ecosystem. Secondly it will recommend a way forward in ensuring that the conclusions drawn are taken into account within the EU and the various mainly gird management driven - bodies that are working on the depiction of the smart grid. Finally we present proposals for demonstration projects.

3.1 Conclusions and recommendations


Conclusions: freedom within limits required
Smart grids represent a complete rethinking of the electricity grid technology and deployment to meet the needs of the 21st century. They promise enhanced energy efficiency at a time when everyone expects energy prices to increase and they promise enhanced grid security at a time when the world remains concerned about terrorist attacks and economic crises. Smart grids also imply a modernization of the traditional grid to accommodate the unique energy generation patterns associated with alternative energy sources. The writers of this white paper of energy retailers for leading European energy companies, believe that smart grids currently represent a major opportunity for a wide variety of businesses ranging from transmission equipment firms, through manufacturers of communications and metering equipment, down to firms that enable customers to achieve energy efficiency and renewable energy sources goals. The latter firms are likely to be the new and existing energy retailers, since in an open, deregulated energy market they represent the customer to the rest of the energy market participants. Like all major infrastructure-related projects, the new business revenues that are likely to flow from the deployment of smart grids will depend heavily on government policy. Governments in the U.S., Canada, Europe, China and Australia, among other nations and regions, are now following similar visions as a way of addressing energy independence, climate change and network survivability issues. We believe that to fully exploit the opportunities that smart grids present, firms will have to have an in depth understanding of the commercial impact of government driven smart grid policies and vice versa. Governments should be aware of the challenges that lie ahead for the various market parties. Only through such an understanding will businesses and regulators be able to distinguish between hype and real revenue potential and be able to set realistic time frames and strategies for their smart grid businesses which also benefit the customer. The sophisticated technologies of grid operation have already affected the relationship between utilities and large industrial power consumers in many countries. Those consumers increasingly face rates that reflect the contemporaneous costs of power production, and some are both consumers and producers of cogenerated power. Communication and control technologies have made some partners with utilities in maintaining reliability, whether by dynamic rates or by new abilities to bid demand reductions into regional energy markets. Relationships between retailers, utilities and their largest customers already provide a preview of the functionality of the smart grids to come. New means to communicate and control power will put utilities and their customers into responsive and mutually beneficial relationships that can reduce the costs of electrical services and aid in the implementation of broader social and environmental policies. The smart grid will open up new markets for many suppliers of equipment and services. We can achieve a better understanding of these
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opportunities, however, if we treat the grids future less as a revolution and more as a massive extension of existing trends. The current focus of many smart grid initiatives and associated regulation is on grid management, and the associated market role, the grid manager (DSO). However, since retailers direct relationship with the customer offers unique opportunities to positively influence the successful establishment of the smart grids, this White Paper has focused on the programmes and structures, which will enable Europes energy retailers to exploit their capabilities - in a manner which will benefit the entire value chain and protect the interests of consumers. It is crucial for European policy makers to realise the special challenges that a competitive energy market places on smart grid development. For eventual success, a clear regulatory framework in which all market actors from generation to consumption can play their full part, is required. Basing regulations only on the interests of one or the other party can therefore substantially risk the efficient development of the smart grids or even the complete development of the smart grids. The retailers represented here strongly recommend therefore that the potential and interests of all members of the energy value chain are recognized and taken into account. Existing energy industry models will definitely change. New parties and roles (like aggregators and energy service providers) will enter the market with new business models and propositions. New processes and interactions between new and existing parties will be defined and new types and uses of data will be introduced. This highlights the issues of interoperability, ownership, privacy, security, quality assurance, and performance of the data exchange. In the area of smart grids we can find different categories of vendors supporting technology of the grid and the interaction of the different actors in the grid among the whole value chain. Each of these categories is responsible to deliver technologies, products and services that meet defined standards for functionality, reliability, interoperability and regulatory compliance. The main problem for the vendors is not the innovation itself or the significant changes in the grid (e.g. massive decentralized generation and storage) and the energy market (e.g. new actors like aggregators and ESCOs, new business models) but the lack of a harmonized standard framework for technology, interoperability and market/business models. An open standards based approach will be the key for market development. New business models and service offerings will evolve as actors take advantage of the new information that results from the new data sources that become available. The ability of actors to better understand their customers needs, their usage behaviours towards electricity, where efficiencies can be gained within the system etc. will all enable new innovative business models and thus service offerings to be delivered to consumers. These in turn will promote further development in new technologies, products and services. These issues can only be solved when the industry as a whole, with all its participants both on the grid side and in the economic arena, is able to create industry wide regulation and standardization. Next to that, as we have seen, there is another issue to be solved, which is the requirement of many innovative energy management products and services, for a real time, two-way interaction with the energy point of delivery. This is already a challenge in several countries where communication capabilities in and supporting smart meters does not enable these services. Therefore we should look for a model that facilitates and enables the required equilibrium between security of supply on the one side, and having a fluid energy market in which environmental goals are achieved on the other. The conclusions that can be drawn for this white paper are the following. Nr. CONCLUSIONS

1 Major changes in an emerging energy landscape, with new technologies already available or soon expected on the market, will open up new possibilities within the retailer-consumer relationship. The energy value chain will become bi-directional for example with the introduction of micro-generation and energy efficiency focused technologies. See section 1.2

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Nr.

CONCLUSIONS

2 If we want smart grid advantages to reach customers, and energy efficiency targets as well as targets for the use of renewable energy source to be achieved, retailers are essential. Energy retailers must be considered as the linking pin between customers, who are at the heart of a smart grid / energy ecosystem when achieving the EU goals as set forward. See sections (1.2 &) 2.1 3 Since the smart grid encompasses a multi-party ecosystem, with differing interests and priorities among parties, initiatives and regulation while safeguarding the interests of the stakeholders must maximize the potential of the entire value chain. If this does not occur the tasks which must be performed by each party to achieve long term EU objectives will either never develop or be hindered by regulatory barriers. See section 1.1 & 2. 4 The main driver for the successful uptake of smart meters is consumer confidence, satisfaction and engagement. It is essential to keep the consumer interest at the forefront and to learn lessons from other deployments. See section 2.2 & 2.4. 5 Developing successful customer oriented programmes that are aligned with the EU energy goals is primarily the responsibility and a key task of the Retailer. Retailers need to align with the regulatory framework and where necessary with the smart grid infrastructure providers and others. See section 1.2. 6 Growing data and information dependency requires drastically rethinking of smart grid fundamentals in that communication capabilities become as central as hardware. We should create an information model to help identify information needs and granularity. Industry systems will have to be overhauled and new interfaces standardized. See section 2.6. 7 The retailer will evolve towards a customer-oriented demand side manager and energy service provider. The customer is an active element of the smart grid. The combination of Retailer and Customer therefore will be of crucial importance in achieving (EU and Member States) energy targets. See section 2.8 8 A key challenge for demand side management and other customer-focused programmes relates to standardization in the areas of technology and regulation. If the EU is to achieve its set targets for energy, regulators and policy makers must ensure that a solid, multi-party regulatory framework is established very quickly, taking the various interests into account. Major challenges include achieving interoperability and open, technology-independent communication through standardisation of interfaces and communication and agreeing on functionalities and common protocols in the area of technology, both infrastructural and applications. The regulation, especially with regard to technology, must however be open enough to allow for new technologies and the possibility of diversification. See section 2.5. 9 Several successful pilot projects for smart grids and smart energy ecosystems are executed and planned. The lessons learned from these pilots should be very seriously taken into account. See section 2.8 10 Regulators should determine the regulatory framework that allows industry retailers, grid managers and other market participants to develop the detail. Regulators should monitor progress in the deployment of smart meters and smart grids together with customer acceptance and uptake of the new potential. It is important that they give priority to ensuring maximum scope for retail differentiation and innovation in the services to be made available. See section 2.7.
Table 4. Conclusions regarding Retailers' position and role in Smart Grids

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3.2 Energy Retailers demonstration project proposals


The following research and demonstration projects are complimentary to the EEGI projects and have been designed with three main objectives: to improve customer service within a Smart Grid future, to maximise the societal benefits gained through Smart Grid and to increase overall systems efficiency through the intelligent cooperation of demand and generation. As Retailers create the link between the customer and the industry, they are well suited to such research and require the support and opportunity to participate in demonstration projects in order to effectively develop their own markets. The 11 projects below have been designed to build a pyramid in 5 progressive levels. Starting with programmes which will be important for a large portion of the population in the Smart Grids world, toward those which will represent a smaller and higher level of engagement in the grid by a smaller number of consumers. In the interests of maximising the programmes impact both commercial and residential customer interests have been given a high level of consideration. The 5 differing levels of the pyramid reflect the 5 differing levels of customer involvement. Retailers will need to learn how to motivate customers within all of the above levels in order to make Smart Grids a reality.

Demonstration Pilot Pyramid: Retailers Taskforce

Demonstration Pilot Pyramid: Retailers Taskforce

Size and Scope of Demonstration Projects

Three research projects and eight demonstration projects are outlined below. The size of the demonstration projects will be programme and call dependent, however they are designed to include between 500-1000 customers each. When these are part of EEGI projects, where grids, supply and demand are involved, the demonstration results will be scalable through simulation for up to 1.5 million customers. This means that the

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combined total impact of the 8 projects would directly involve 4 thousand to 8 thousand customers and be modelled up for 12 million customers. For markets such as the UK, France and Germany, which include large-scale connections of renewables and EVs (over and above 1.5 million customer), performance simulation models and existing benchmarks for up to 30-50 million customers can be implemented. This would be applicable in, for example metering, services and meter data management vendors. The total cost of the research and the demonstration projects is calculated to 321 million Euros.

Pyramid Level 1 Customer Awareness, Advice and Visibility


This forms the basic first requirement of a successful Smart Grid implementation. In todays energy system generation reacts to demand but demand does not react to generation. Without an intelligent interaction between both demand and generation, the Smart Grid will not be intelligent. The key to a successful Smart Grid for Europe therefore lies in unlocking the needs of residential consumers and enabling them or empowering them to participate in the energy system. Level 1 of the pyramid therefore includes research and demonstration projects, which will allow Retailers and the other market players involved to explore the requirements of mass communication, customer involvement best practice and the regulatory structures needed to make demand side programmes possible.

Level I

Customers Energy Efficiency (EE) Information and Awareness

Research project 1 Best practices of Retailers in terms of Business Models, Regulatory Frameworks and impact on customers in terms of energy efficiency 1. Analysis of business models and best practices based on Analysts- and Associations reports and identification of synergies from other sectors such as telecoms and insurance. 2. Collect best practice models from other international markets practice and within utilities national markets in Europe and other regions that can be transferred to current market situation. 3. Build a synopsis of findings and generate a synthesis for the requirements of a future generic model including Market-model (market-roles / actors, business cases, interaction) Regulatory framework (given and further requirements) Impacts on customer benefits (especially in terms of energy efficiency) 4. Describe differences to todays models (e.g. from ebIX/ENSTO-E) and a possible roadmap to the new model; prioritizing benefits . 5. Develop a proposal for a business and interaction framework for use in the relevant demonstration models. Research project 2 Energy Consumer Behaviour

1. Research of Key variables of Residential Consumer Behaviour 2. Research of Key aspects of Commercial Consumers Behaviour 3. Research of Key aspects of Industrial Consumer Behaviour

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1. Establish a flexible secured framework to ensure retailer access to Customers Data and ability to develop customer oriented programmes 2. Develop models which resolve questions of Red Taxed electricity 3.Research on alternative Regulatory Funding models for smart metering roll-out and adoption Demonstration project 1 Create a toolbox for a regular check-up of Customers consumption compared to their category and their peers 1.Reporting and benchmarking of Energy Efficiency data aiming at increasing Customer awareness and changing his behavior

Pyramid Level 2 Dynamic Pricing, Demand Response


While all consumers should have the right to feedback information within the smart grid, not all consumers will wish to participate in dynamic pricing programmes. However, these are an essential pillar for efficient load balancing, peak clipping and the efficient integration of intermittent renewables. This will include involving both residential and commercial consumers. Dynamic Pricing programmes have been shown to have a triple benefit when properly implemented 1) Increased efficiency of the total energy system, including a reduced need for CO2 intensive peaking plants and back-up generation for intermittent renewables 2) Lowered overall systems costs which are directly felt by society as a whole as well as those who participate in the programmes 3) Green jobs and financial earnings for the society The demonstration projects in Level 2 of the pyramid therefore concentrates on maximising these possible benefits through research and demonstration projects, improving customer segmentation and pricing programmes. Customer segmentation is essential in order to enable the industry to maximise customer acceptance and uptake levels as well as to ensure that they create programmes which are truly beneficial to targeted customers. Differing customer groups and market challenges will require various pricing structures. The demonstration projects within Level 2 will heighten and refine current knowledge of these areas. The research and demonstration titles for Level 2 are as follows: Level II Improve Customers EE through dynamic pricing

Demonstration project 2 Dynamic pricing service packages, communication tools to manage load and customer acceptance 1.Develop and test market based pricing on load variable tariffs 2.Develop and test dynamic pricing and communication techniques for those with microgeneration 3.Develop and test dynamic pricing for segmented commercial and residential customers to balance renewable generation

Pyramid Level 3 Energy Management Systems


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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe Feedback and pricing act as two central demand side tools for empowering end-consumers to actively participate in their own energy management and to increase the overall systems efficiency. However, consumers can increase their benefits and the benefits to the entire system if they have the help of automation. Research shows that both overall consumption reductions and peak clipping results are doubled and sometimes tripled when automation is used, either for residential or commercial consumers10. Level 3 therefore concentrates on exploring the potential of advanced Demand Side Management programmes and tools for those consumers this could benefit. Level III Customers Energy Management System integrating advanced DSM Demonstration project 3 Energy Management Large users Customer segmentation and communication techniques Demand Response Residential consumers Segmentation and Communication techniques 1. Investigate segmentation of Commercial/Residential customers and their requirements for successful participation in DR" 2. Make buildings intelligent 3. Data management business model across the whole value chain 4. Collect inputs for regulation policies Demonstration project 4 Price and Energy efficiency sensitive automation

1.Test Smart Home applications and customer acceptance for automated DR programmes of various reaction times and lengths. Include cost benefit and commercialization issues. 2.Test Commercial site automation for business type, coordinated with speed and length of reaction time 3.Test automation applicability for various building types (historic, public) 4.Machine to Machine Communication and Automation The research and demonstration titles for Level 3 are as follows:

Pyramid Level 4 Connecting Renewables and EVs


Electric Vehicles and micro-generation both pose unique challenges to network balance, and forecasting. They also provide new potential for prosumers and EV owners to actively participate in load balance activities and supply. Many questions remain however how this is to be done, how consumers are to be motivated to participate and what regulatory frameworks will be required to enable successful implementation of such programmes. Level 4 of the pyramid reflects the specialised nature of these demonstration projects. The projects are designed to explore both technical and communication/ customer involvement issues. Again customer acceptance and involvement will be central here and the projects have been designed accordingly. Level IV EV Customers Energy Management System integrating a large scale of Prosumers and Integration of large scale of Prosumers and Electric Vehicles and

Demonstration project 5 Demand Response


10

Respond 2010, VaasaETT Global Energy Think Tank. 2010


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1.Develop and test customer oriented programmes designed to improve grid balance and the integration of EV. Areas of focus: pricing structures, customer acceptance and customer communication methods Demonstration project 6 Overall integrated concept

1.Test demand response, pricing, automation and storage programmes including aggregated groups of pro-sumers 2.Develop information exchange requirements to prevent grid congestion occurrences. Demonstration project 7Smart Grids evolving Customer management that Retail have to handle with full flexibility 1.Programme structures are often static and assumer consistent long term reactions on the part of customers. Develop Smart Grid programmes which take into account life cycle changes in consumer behavioural patterns and management

Pyramid Level 5 E-Marketplace For Energy


The last and most advanced level in the pyramid combines all 4 previous areas of demonstration: Customer communication, pricing programmes, customer segmentation, automation, prosumer and electric vehicle integration. The aim here is to create a full range E-Energy Market with the consumer (rather than the technology) as the central focus. Again this will be done to ensure that customer service levels are optimised as well as overall societal benefits. Level V National and Pan-European E-Energy Customer centric Retail Marketplaces Demonstration project 8 collaborative models Integrated Project: Develop pan-European and Global Retailers

1.Global demonstratorinternational interoperability (cross border, energy roaming, uniform regulations).

Project Benefits Each of these projects not only represents the 5 levels of customer involvement which will be required for the success of the smart grid but each project brings with it concrete and measurable benefits to the entire value chain in areas such as: grid stability and the increased integration of wind and solar generation, lowered delivery costs and green job creation. Below is a chart listing the projects by number and their benefits for differing market segments.

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Stakeholders

Project KPIs

Target

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

R1 Increased quality of supply Customers Reduction in outage time Reduction in electricity bill (Residential) Increased customer satisfaction Increased customer engagement and knowledge Reduction in electricity bill Commercial Business Improved usage of microgeneration Improved understanding of customer needs Increased number of programs offered Reduction of retailer peak electricity purchasing risk Increased lifespan of electric infrastructure Reduction in operation costs Reduction in Peak to average load ratio Improved network capacity Reduction in distribution losses Improved incorporation of renewables 3rd party entrants Increased EV integration capacity Improve efficiency of local industry - especially SMEs Reduction in electricity consumption Social Benefits Create green jobs Reduction in CO2 emissions Increased social cohesion Improved market competition Stimulate commercial business
2-10% 2-10% 5-20% 5-20%

R2

D1

D2

D3

D4

D5

D6

D7

D8

Increased customer choice 20-50%


20-50% 2-5% 2-10% 20-50% 20-50% 2-10% 10-20% 0-30% 5-25% 5-15% 0-2% 10-20% 20-50% 100%
2-5%

Retailer

DSO

System

5-15% 2-5% 5-20%


2-10% 5-30%

2-5%

Figure 20. Project Benefits per Stakeholder

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Level I

Customer Awareness, Advice and Visibility


1. Analysis of business models and best practices based on Analysts- and Associations reports and identification of synergies from other sectors such as telecoms and insurance. 2. Collect best practice models from other international markets practice and within utilities national markets in Europe and other regions that can be transferred to current market situation. 3. Build a synopsis of findings and generate a synthesis for the requirements of a future generic model including 4. Describe differences to todays models (e.g. from ebIX/ENSTO-E) and a possible roadmap to the new model; prioritizing benefits . 5. Develop a proposal for a business and interaction framework for use in the relevant demonstration models. 1. Research of Key variablesof Residential Consumer Behaviour 2. Reserach of Key aspects of Commercial Consumers Behaviour 3. Research of Key aspects of Industrial Consumer Behaviour 1. Establish a flexible secured framework to ensure retailer access to Customers Data and ability to develop customer oriented programmes 2. Develop models which resolve questions of Red Taxed electricity 3.Research on alternative Regulatory Funding models for smart metering roll-out and adoption 1.Reporting and benchmarking of Energy Efficiency data aiming at increasing Customer awareness and changing his behavior

Investment Costs (k)


1500

Research project 1 Best practices of Retailers Best Practices in terms of Business Models and Regulatory Frameworks

1500

1000

500

500

Research project 2 Energy Consumer Behaviour

1000 1000 1000

Research project 3 Retailers Regulatory Models that facilitate adaptive product proposition

4000

2000 2000

Demonstration project 1

Create a toolbox for a regular check-up of Customers consumption compared to their category and their peers

20.000

Level II
Demonstration project 2

Dynamic Pricing, Demand Response


Dynamic pricing service packages, communication tools to manage load and customer acceptance 1.Develop and test market based pricing on load variable tariffs 2.Develop and test dynamic pricing and communication techniques for those with microgeneration 3.Develop and test dynamic pricing for segmented commercial and residential customers to balance renewable generation
8.000

12.000

15.000

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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe

Level III
Demonstration project 3

Energy Management System


Energy Management Large users Customer segmentation and communication techniques Demand Response Residential consumers Segmentation and Communication techniques Price and Energy efficiency sensitive automation 1. Investigate segmentation of Commercial/Residential customers and their requirements for successful participation in DR 2. Make buildings intelligent 3. Data management business model across the whole value chain 4. Collect inputs for regulation policies 1.Test Smart Home applications and customer acceptance for automated DR programmes of various reaction times and lengths. Include cost benefit and commercialization issues. 2.Test Commercial site automation for business type, coordinated with speed and length of reaction time 3.Test automation applicability for various building types (historic, public) 4.Machine to Machine Communication and Automation

8.000

8.000 10.000 8.000

Demonstration project 4

15.000

8.000

8.000 5.000

Level IV
Demonstration project 5

Connecting Renewables and EV


Integration of large scale of Prosumers and Electric Vehicles and Demand Response 1.Develop and test customer oriented programmes designed to improve grid balance and the integration of EV. Areas of focus: pricing structures, customer acceptance and customer communication methods 1.Test demand response, pricing, automation and storage programs including aggregated groups of pro-sumers 2.Develop information exchange requirements to prevent grid congestion occurrences. 1.Programme structures are often static and assumer consistent long term reactions on the part of customers. Develop Smart Grid programmes which take into account life cycle changes in consumer behavioural patterns and management

30.000

Demonstration project 6

Overall integrated concept

30.000

30.000

Demonstration project 7

Smart Grids evolving Customer management that Retail have to handle with full flexibility

30.000

Level V
Demonstration project 8

eMarketplace for Energy


Integrated Project: Develop panEuropean and Global Retailers collaborative models 1.Global demonstratorinternational interoperability (cross border, energy roaming, uniform regulations).
60.000

Figure 21. Research and Development Proposals

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Document data
Contributors Alexander Pisters Barbara Doersam E WIE EINFACH Strom und Gas GmbH Senior Project manager New Technologies MVV Energie Senior Management Market Development SPE Luminus Senior Regulatory Manager Centrica Electrabel M&S Smart Metering and Smart grids projects Member of the Extended ACCU Workgroup on Advanced Metering Infrastructures and Smart grids Electrabel E WIE EINFACH Strom und Gas GmbH Retail Business Home Services Manager Iberdrola Regulatory Affairs/Policy Issues Yello Strom GmbH EDF Chairman of the WG3 Demand & Metering/Retail European Technology Platform (ETP) SmartGrids (VP, Head of Utilities & Services Industries for Europe, MEA&I SAP) Enterprise Architect, IT Strategy & Architecture Nuon Energy NV (Vattenfall Group); Member of the Extended ACCU Workgroup on Advanced Metering Infrastructures and Smart Grid, Sub Working Group AMI Nuon / Vattenfall Consultant Strategic Sales Management B2B EnBW AG, HOL OD EMEA Industry Business Solutions SAP AG E WIE EINFACH Strom und Gas GmbH Manager IT Strategy & Architecture at Nuon Energy NV (Vattenfall Group) / Chair of Extended ACCU Workgroup on Advanced Metering Infrastructures and Smart Grids Senior Partner. VaaasETT Global Energy Think Tank

Bram de Wispelaere David Johnson Eric Duys

Georg Schrder Gonzalo Carton Tamayo

Gundula Klesse Jean-Luc Dormoy Maher Chebbo

Martijn van Glabbeek

Melanie Nickel LL. M. Fritz Schwarzlander Stefan Kenkmann drs. Jeroen Scheer MScM

Main editors

Jessica Strmbck

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Coordination

Miguel Gaspar Silva

Industry Director, Utilities EMEA Industry Business Solutions SAP AG Member of the Extended ACCU Workgroup on Advanced Metering Infrastructures and Smart grid, Sub Working Group AMI Member of ESMIG and coordinator at the European Business System Integration and Interoperability Group

Date Version Classification

3rd of December 2010 1.0 Final Document

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Glossary of Terms
Term Active Networks Abrev. Description Distribution networks traditionally are passively managed. Active management enables generators and customers to connect more easily; allow greater interaction between utilities and customers and provide incentives to consumers and generators to act more efficiently both in the short and long-term. Active management stems from greater interconnectivity of networks and the use of local control areas (or cells). Such networks offer the opportunity for an increased range of services to consumers, as well as offering greater operational security. They tend to become increasingly necessary as the level of distributed generation on a system increases. See Smart Grid

Advanced Distribution Infrastructure Advanced Metering Infrastructure

ADI

AMI

Advanced Metering Infrastructure (AMI) or Advanced Metering Management (AMM) refers to systems that measure, collect and analyze energy usage, from advanced devices such as water meters, electricity meters and gas meters, through various communication media on request or on a pre-defined schedule. This infrastructure includes hardware, software, communications, customer associated systems and data management software. The network between the measurement devices and business systems allows collection and distribution of information to customers, suppliers, utility companies and service providers. This enables these businesses to either participate in, or provide, demand response solutions, products and services. By providing information to customers, the system assists a change in energy usage from their normal consumption patterns, either in response to changes in price or as incentives designed to encourage lower energy usage use at times of peak-demand periods or higher wholesale prices or during periods of low operational systems reliability. Although AMI may embed or include a component of various technologies mentioned here, it is a composite technology category of its own, composed of several elements: Meters Electromechanical, solid-state electronics and microprocessor-based Home gateway Device able to collect data from, communicate with and control various energy-using appliances throughout the home such as air conditioners and hot water heaters. A home gateway also has two-way communications with the utility Communication Meter-to-central-repository communication channels, such as PLC, BPL, WiFi, satellite, radio frequency (RF) and

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Term

Abrev.

Advanced Metering Management Advanced Metering Reading

AMM

Description GSM/GPRS/UMTS IT Hard- and software for meter steering and central data processing, repository and dissemination See Advanced Metering Infrastructures

AMR

Automatic Meter Reading (AMR) is the technology of automatically collecting data from water meters or energy metering devices (gas, electric, heat) and transferring that data to a central database for billing and/or analyzing. This means that billing can be based on actual consumption rather than on an estimate based on previous consumption, giving customers better control of their use of electric energy, gas usage, or water consumption. AMR technologies include handheld, mobile and network technologies based on telephony platforms (wired and wireless), radio frequency (RF), or power line transmission. A permanent communication network that implements two-way communication to every End Point Device and which supports the transport of at least hourly interval meter reading data at least daily to Energy East while also supporting applications that can control End Point Devices Advanced networks possess the flexibility to communicate using multiple protocols and communications networks. These networks have standardizations of technologies to expand the capabilities of emerging communications standards. A range of services necessary to the efficient running of the electricity system which are outside the basic needs of energy, generating capacity, and power delivery. Some of these (such as regulation and reactive power) are required during normal operations to maintain the necessary balance between generation and load in real time and maintain voltages within the required ranges. Other ancillary services (such as contingency reserves) provide insurance to prevent minor problems from becoming major catastrophes. Finally, some services (such as system black start) are required to restore the bulk-power system to normal operations should a major outage occur. The average price paid by consumers over the course of one year. It is significant in that it will often be the base for the setting of tariffs paid under Tariff Mechanisms. A party that has a contract providing financial security and identifying balance responsibility with the Imbalance Settlement Responsible of the market balance area entitling the party to operate in the market. This is the only role allowing a party to buy or sell energy on a wholesale level. The meaning of the word "balance" in this context signifies that that the quantity contracted to provide or to consume must be equal to the quantity really provided or consumed. Such a party is often owned by a number of market players or is government owned. Equivalent to "Program responsible party" in the Netherlands. Equivalent to "Balance responsible group" in Germany. Equivalent to "Market agent" in Spain.

AMI System

Advanced Network

AN

Ancillary Services

Average Electricity Tariff Balance Responsible Party

AET

BRP

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Term Balance Supplier

Abrev. BSu

Description A party that markets the difference between actual metered energy consumption and the energy bought with firm energy contracts by the Party Connected to the Grid. In addition the balance supplier markets any difference with the firm energy commitment [of the Party Connected to the Grid] and the metered production. There is only one balance supplier for each metering point. Balancing of supply and load (or demand) for electricity

Balancing Broadband over PowerLine BPL

Co-generation

Concentrator

Consumer

Broadband is a type of data transmission in which a single wire can carry several channels at once. Cable TV, for example, uses broadband transmission. Electricity providers can use BPL technology to transmit data over the power lines that they already have in place, by using a system of signal injectors, repeaters, and extractors that avoid interference at the distribution transformer. The frequency of BPL signals is much higher than that of traditional Power Line Carrier systems. A method of using the heat that is produced as a by-product of electrical generation and that would otherwise be wasted. The heat can be used for space heating of buildings (usually in district or community heating schemes) or for industrial purposes. Utilizing the heat in this way means that 70-85% of the energy converted from fuels can be put to use, rather than the 30-50% that is typical for electrical generation alone. Co-generation schemes can be relatively small scale, for use at the level of a factory or hospital, or can be major power stations. A Network Node that is located in the field, either on poles or in substations, and that communicates in one direction with the Head End System and in the other direction with Repeaters and or End Point Devices such as AMI Meters. A party that consumes electricity, gas or any other form of utility related products. This is also the end-user of electricity and/or gas where (smart) meters are installed. This is a type of Party Connected to the Grid. A location where consumption is metered. This may correspond to one physical point or the combination of several points together. Way of varying the price of electricity according to the time when it is consumed. Critical peak pricing involves utilities forecasting a period of peak demand and announcing a short-term price increase to coincide with energy used during that peak period Curtailments represent volumetric reductions from contract quantities, from normal historical quantities or from other bases the reporting firm has selected. The computer data base and information system that contains all billing and personal data pertaining to utility customers, including a system for customer care A device that manage devices on the power line network and provide the connectivity infrastructure between meters and the AMI software. Collecting meter data at frequent time intervals in order to provide feedback on usage for billing disputes, energy saving efforts and leak detection. Most utilities do not currently collect consumption data more frequently than monthly.
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Consumption Metering Point Critical Peak Pricing

CMP CPP

Curtailment

Customer Information System Data Concentrator Data Logging

CIS

DC

DL

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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe

Term Declared Net Capacity

Abrev. DNC

Demand Forecasting

DF

Description A modifying factor applied to the plate (theoretical) capacity of an intermittent renewable energy generator to establish the realistic output. In broad terms, the dnc is the equivalent capacity of baseload plant that would produce the same average annual energy output as the renewable energy plant. The dnc will, in practice, vary from generator to generator; however a general multiplying factor is sometimes applied to give a general figure for the turbine performance. It is most commonly applied to wind power. Producing predictions on the behaviour of energy consumers in order to ensure security of supply against reasonable costs. It concerns econometric methods of forecasting, that can be described as the science and art of specification, estimation, testing and evaluation of models of economic processes that drive the demand for fuels. Normally forecasts are at grid exit point. They include lines company losses but exclude consumption met by embedded generation. Electricity demand modelling has been broken down into three main sectors: Residential Commercial and industrial Heavy industrial direct connects Demand response is a tariff or program established to motivate changes in electric use by end-use customers in response to changes in the price of electricity over time, or to give incentive payments designed to induce lower electricity use at times of high market prices or when grid reliability is jeopardized. Price-based demand response such as real-time pricing (RTP), critical-peak pricing (CPP) and time-of-use (TOU) tariffs, give customers time-varying rates that reflect the value and cost of electricity in different time periods. Armed with this information, customers tend to use less electricity at times when electricity prices are high Incentive-based demand response programmes pay participating customers to reduce their loads at times requested by the program sponsor, triggered either by a grid reliability problem or high electricity prices The planning, implementation, and monitoring of utility activities designed to encourage consumers to modify patterns of electricity usage, including the timing and level of electricity demand. It refers only to energy and load-shape modifying activities that are undertaken in response to utility-administered programmes. It does not refer to energy and load-shape changes arising from the normal operation of the marketplace or from government-mandated energy efficiency standards. Demand-Side Management (DSM) covers the complete range of load-shape objectives, including strategic conservation and load management, as well as strategic load growth. A process whereby an End Point Device is attached to a customer device such as a hot water heater or air conditioner to turn electricity on and off according to messages sent by the AMI

Demand Response

DR

Demand Side Management

DSM

Direct Load Control

DLC

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Term Distributed Generation / Decentral Generation

Abrev. DG

Description System to the Direct Load Control End Point Device. Essentially any generator which connects directly to the distribution (low voltage) electricity grid rather than the transmission (high voltage) grid, with the ability to generate energy at dispersed points within an energy grid or energy transmission system. Technology is allowing more users of energy to become producers of energy as well. Utilities, as the operators of the energy distribution system, need to understand where these distributed generation resources are located and how they affect power distribution and consumption. Technology is also allowing for small, cost-effective power generation operations located closer to the point of consumption. Utilities also need to know what generation capacity exists is case additional capacity needs to be online. The transport of low voltage electricity. This connects the transmission network with the majority of electricity consumers. The process is overseen by a distribution network operator. Management of distribution is a natural monopoly due to the economies of scale inherent to it. Applying data analysis to optimize the deployment, maintenance and reliability of electricity distribution assets such as transformers. See Distributed Generation Using less energy (kWh or GJ or m3) irrespective of whether the benefits increase, decrease or stay the same. Energy conservation is thus the goal if environmental targets are to be met. A.k.a. Retailer. The company that is responsible for delivery of electricity and/or gas to the connections. The Energy Retailers are responsible for handling the consumers. This can be defined in slightly different ways, and includes using less energy (kWh) to achieve the same benefits (e.g. internal temperature, industrial output etc), or using the same or a lesser amount of energy (kWh) but achieving more benefits (e.g. a warmer home, higher output). The focus tends to be on improving the welfare of the end-user. The last device that is deployed in the field and that supports an application within the AMI System. Examples of End Point Devices include AMI Meters for electricity, AMI Modules on gas meters and Direct Load Control switches. A device that handles communications between the utility and devices on the customer premise such as thermostats, water heaters, and pool pumps. Gateways offer two-way communications, and often the ability for customer to override the utilitys load control signal. Gateways overcome the limitations of one-way load control by sending confirmation signals back to the utility. Web-based software allows customers to see the status and effects of load control actions. The production of electricity from other energy sources. This can include coal, oil, gas, nuclear fission, wind, waste combustion and many others. Generation can be entirely run as a monopoly or be subject to competition. A party that operates one or more grids.

Distribution

Distribution Asset Optimization Embedded Generation Energy Conservation Energy Retailer Energy Efficiency

DAO

EG EC

SC

EE

End Point Device

EPD

Gateway / Home Gateway

Generation

Gen

Grid Operator

DSO

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Term

Abrev.

Description The grid operator is responsible for the equipment and the services delivered through the equipment. A.k.a. Distribution System Operator. Grid Operator Electricity: The grid operator responsible for the installation of equipment for electricity and gas and the services delivered through the electricity equipment. Grid Operator Gas: The grid operator responsible for the gas equipment and the services delivered through that equipment. Handheld AMR is where a meter reader carries a handheld computer with a built-in or attached receiver/transceiver (radio frequency or touch) to collect meter readings from an AMR capable meter. This is sometimes referred to as "walk-by" meter reading since the meter reader walks by the locations where meters are installed as they go through their meter reading route. Handheld computers may also be used to manually enter readings without the use of AMR technology. The head end system receives the stream of meter data brought back to the utility by an AMR system. Head-end systems may perform a limited amount of data validation before either making the data available for other systems to request or pushing the data out to other systems. Head-end systems may also perform a limited set of data management functions for such activities as route management, outage detection, and on-demand reads. A collection of devices in the data center that collects data and communicates with Concentrators.

Handheld AMR

Head End System

Home Area Network

HAN

A computer network covering a home. A Home Area Network links the utility and the device to the customer through a two-way open standards based communications. The HAN includes the utility-owned premise gateway as well as Customer owned and operated devices and systems which brokers third part messaging in between the customer's HAN-attached devices and the utility's premise gateway.

In Home Display Independent Service Provider Intelligent Grid Interval Data Collection

IHD ISP

A device located in the customer premises and that is used to display information to the customer. A company independent of grid operators, supply companies or metering companies that provides a service to the connections in the grid using the infrastructure provided by the grid operator and the metering company. See Smart Grid For purposes including load research, demand response and ondemand reads, meter data is frequently collected in hourly or even 15-minute intervals. Short-term storage of this interval data takes place before the system communicates the data to the utility. In
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IG

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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe

Term

Abrev.

Leak Detection Load Control

LD

LC

Load Forecasting Load Profiling

LF

LP

Meter Administrator Meter Operator Metering Data Aggregator Metering Data Collector Metering Data Management

MA MO MDA

Description general, interval data can be collected at the meter, or at an intermediary spot such as the fixed network collector unit that reads the meters output. Finer resolution of data in smaller time increments requires communications systems that can transmit the data without bogging down. Leak detection combines data from meters installed at the customers premise and on the water distribution system with software that analyzes the data from the meters. Having and exercising direct control over appliances or equipment at a customers premise for the purpose of lowering peak demand. When a utility has control over equipment, it typically does not receive a signal confirming that its load control command has been received and executed. C&I customers can also have controls in their buildings to help control load. Load forecasting is the estimation of electricity or natural gas consumption at some future time. Forecasts can predict demand minutes ahead to years into the future. Charting the hourly or sub-hourly pattern of energy use for a customer or class or customers. The resulting chart is also called a load shape. Load profiling is also known as load research. A party responsible for keeping a database of meters. A party responsible for installing, maintaining, testing, certifying and decommissioning physical meters. A party responsible for the establishment and qualification of metered data from the Metered Data Responsible. This data is aggregated according to a defined set of market rules. A party responsible for meter reading and quality control of the reading. Meter data management (MDM) is the ability to ensure the reliability of, and optimize the use of, available data. A full-function MDM solution seamlessly combines data from multiple sources that use a variety of formats and collection schedules. It supports incorporation of new data sources through creation of interfaces without requiring changes to the existing MDM application or data structure. It provides for safe and efficient storage and securitycontrolled retrieval of data. It includes validation, editing, estimation, aggregation, and unit and interval conversion tools to ensure the reliability and manage the usability of data. It reports and tracks data sources and versions. It provides advanced calculation capabilities to support functions such as time-of-use and critical peak billing determinants. It enables interface to other utility systems such as customer information, outage management, work management, and geographical information. It provides flexible and comprehensive reporting. A party responsible for the establishment and validation of metered data based on the collected data received from the Metered Data Collector. The party is responsible for the history of metered data in a metering point. A point where energy products are measured.

MDC MDM

Metering Data Responsible

MDR

Metering Point

MP

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Term Metering Point Administrator

Abrev. MPA

Microgeneration

Microgen

Net Metering

NM

Open Standards

Description A party responsible for registering the parties linked to the metering points in a grid area and its technical specification. The Metering Point Administrator is responsible for creating and terminating metering points. Micro-generation systems typically range in size from a few kilowatts (kW) to 500 kW. They are small generators installed close to the point of use, either in smaller businesses or for household use. Net metering applies to energy customers, such as commercial and industrial users, who both generate and purchase power. Utilities need to meter the power generated by customers to determine the credit the customer should receive. A net register calculates energy to be billed by subtracting power received from the customer from the power delivered to the customer. Net metering provides the technology to calculate this amount as a net amount within the meter. This saves the utility from needing to record multiple billing values during the data collection process and performing calculations to determine the net value. A standard that is publicly available and has various rights to use associated with it. An agreed-upon method or implementation defining how part of a process, product, or solution should operate. An open standard is made available so that any interested party or organization may provide part of an open system. A computer system used by operators of distribution systems to assist in restoration of power. A party that contracts for the right to consume or produce electricity at a metering point. The traditional electricity supply paradigm, wherein generators are hooked to the transmission network and then supply electricity to order, down to the level of distribution. A rate-setting mechanism, typically negotiated between utilities and PUCs, which links incentive rewards or penalties to desired performance results or targets. PBR is a form of rate regulation that provides utilities with better incentives to reduce their costs and improve service than cost-of-service regulation. Typical PBR performance measures include customer satisfaction, number and duration of power outages, cost reductions, investment in conservation technology and demand side management measures. The ability to credit a customers account or meter for pre-payment for energy. A fairly common approach is to have customers prepurchase energy cards or vouchers, much like they would a prepaid phone card, and their Pre-paidenabled meter would provide the interface and communications technology that enables them to redeem the card for energy on a pay-as-you-go basis. Using pricing structures that vary more frequently than the standard, single-price or block rate tariff to influence energy consumption. Examples include TOU rates, critical peak pricing and real-time pricing. A thermostat that has a two-way communication capability with the AMI System and that can be programmed by the customer as well

Outage Management Systems Party Connected to the Grid Passive Networks Performance Based Rates

OMS

PCG

PN

PBR

Pre-paid Metering

PPM

Price Response

PR

Programmabl e

PCT

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Term Communicating Thermostats Real time Data

Abrev.

Description as receive messages from the affiliates including control messages.

Real time Pricing

RTP

Reconciliation Accountable Reconciliation Responsible Remote Disconnect / Connect Virtual Disconnect / Connect

Recon Acc RR

Renewable Energy Revenue Assurance RevAs s

Real-time or near-real-time data collection is the ability to collect data automatically on demand, and have the data delivered and analyzed quickly enough to effect monitoring and control decisions. This can be data directly collected from the meter (real-time) or logically derived from data in the database (near-real-time). Realtime or near-real-time data collection would likely be a key component of so-called Smart Grid Technology. Way of varying the price of electricity according to the time when it is consumed. Real-time pricing involves varying the price of electricity in near-real time according to the balance of supply and demand. A party that is financially accountable for the reconciled volume of energy products for a profiled Local metering point. A party that is responsible for reconciling, within a Metering grid area, the volumes used in the imbalance settlement process for profiled metering points and the actual metered quantities. Disconnecting and reconnecting a customers electrical or gas providing service without accessing the customers premises or sending a service vehicle into the field. A hard disconnect that is, cutting off power to a premise by throwing a physical switch can be performed remotely, but requires additional specialized equipment at the meter. A virtual disconnect that is, obtaining an on-demand meter read at the time a premise is vacated or occupied can be performed remotely through fixed network AMR systems. Virtual disconnect can also include monitoring of any consumption that should not be occurring after disconnect. In addition, some utilities are effectively utilizing mobile AMR systems to perform offcycle, final reads associated with move-ins and move-outs. The use of energy from a source that does not result in the depletion of the earth's resources whether this is from a central or local source. Assuring that revenue generation and retention is maximized at every possible point along the utility value chain. In other words, making sure that a utility can account for, bill for, and collect on every last bit of service that they provide. Avenues of revenue assurance include: Efficiently distributing service, making sure that energy and water are not stolen during transmission or lost to leakage or technical line loss. Securely providing service, so that users cannot steal services. Accurately metering delivered energy and water. Correctly and completely billing for services provided. Preventing and quickly responding to outages, thereby limiting the amount of consumption lost to outage. Correctly collecting and accounting for revenues from services. Fully complying with regulatory requirements, so as to avoid fines and penalties. Accurately forecasting future demand and revenues, so as to plan for the most efficient delivery of and collection for services.
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Term Smart Grid

Abrev.

Description Smart Grids are an interactive network of relatively autonomous (generation) units that can be managed independently, but operate collectively in a framework of common principles and standards allowing a bi-directional flow of energy and information. The intelligent grid is defined as the innovative use of communication, information and energy technologies to create a (electricity) delivery system that is: Self-healing and adaptive; Interactive with consumers and markets; Empowering to customers; Optimized to make the best use of resources and equipment; Predictive rather than re-active, to prevent emergencies; Integrated: merging monitoring, control, protection, maintenance, EMS, DMS, marketing and IT;

Smart Metering

SM

More secure. A foundational technology including meters, communications systems, and computer processing that automatically collects meter data frequently to support various applications beyond monthly billing. As markets adopt programmes known colloquially as Advanced Metering Initiatives, it becomes important to understand what is meant by smart metering. This is particularly true as some metering and AMR manufacturers have labeled their products as smart meters. See also AMI and AMR. A.k.a. Supplier. The company that is responsible for delivery of electricity and/or gas to the connections. The supply companies are responsible for handling the consumers. A party that is responsible for a stable power system operation (including the organization of physical balance) through a transmission grid in a geographical area. The SO will also determine and be responsible for cross border capacity and exchanges. If necessary he may reduce allocated capacity to ensure operational stability. Transmission as mentioned above means "the transport of electricity on the extra high or high voltage network with a view to its delivery to final customers or to distributors. Operation of transmission includes as well the tasks of system operation concerning its management of energy flows, reliability of the system and availability of all necessary system services." Multi Party System that arises in a liberalised and/or unbundled Energy Market to ensure security of energy supply and maximizing benefits for all in that system in a balanced way. Way of varying the price of electricity according to the time when it is consumed. Time-of-use pricing involves having a set schedule of electricity prices tied to the time of day or the day of the week
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Supply Company System Operator

SC

SO

Smart Energy Ecosystem Time-of-Use Pricing ToU

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Energy Suppliers/Retailers Perspective on the Deployment of Smart Grids in Europe

Term Timestamp

Abrev.

Transmission

Two-Way Networks, Two-Way Systems, Two-Way Communicatio ns

Description (weekday versus weekend and holiday). A timestamp is used to indicate a moment in time. In order to be useful the time stamp shall include the date as well as the time. The time in a timestamp shall be specified including hours, minutes and seconds. The format of a time stamp is defined as: yyyy-mm-dd h24:min:sec. The transport of high voltage electricity. This is achieved with a transmission network (or grid). Generally the network will connect large generators to lower voltage distribution networks where it will be transported to the majority of electricity consumers. Alternatively, large scale electricity users may connect directly to the transmission network. Management of transmission is a natural monopoly due to the economies of scale inherent to it. The ability to send and receive signals in both directions between the head end and the endpoint of an automated meter-reading system. In particular, the ability for either end of an automated meter-reading system to respond to an unscheduled communication initiated from the other end.

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