The energy market has never been more dynamic than it is today. Diverse political, economic, social and technological developments are having an enormous impact on the current energy market. Continuous and frequent changes in regulations also are increasing the pressure on the market to meet more complex requirements and tighter deadlines.
In addition, market changes are resulting in greater centralization, such as the introduction of data hubs, which are influencing the strategic choices and investments of market players. At the same time, decentralized sustainable energy production in conjunction with digital innovation are disrupting the energy supply chain.
DE-REGULATION AND MARKET ROLES
In the past 15 years, roles in the energy market have changed substantially. Before 2007, the energy value chain was vertically integrated, and grid operators and suppliers were part of one multi-utility organization. In 2007, the law of Independent network management (LIMA) came into force. The objective was to create a clear distinction between the different market functions to prevent the abuse of dominant market positions and to ensure free and non-discriminatory access to the grid.
Fostering competition in retail markets was viewed as a way to drive innovation. This will result in the creation of new energy services, provided by suppliers, including those that will encourage consumer participation in support of managing the new energy system. For example, services that allow grid operators to exploit the flexibility of prosumers for the benefit of all stakeholders require consumers to trust their utility suppliers to provide them services that deliver real value.
Currently, the sector is preparing for leaner, more optimized and modernized organizations. While this implies that grid operators will not be involved in commercial activities, it does not mean that grid operators will just become “carriers” purely focused on maintaining and providing energy flow. de-regulation makes it possible for them to offer services that are not commercial such as providing information within the grid. These developments are progressing rapidly—making current market structures and roles unsustainable. In this scenario, what will the future look like?
CURRENT DEVELOPMENTS IN MARKET FACILITATION
In this context, market facilitation relates to the exchange and sharing of data among all market parties, including data from loads at the edge of the grid to consumer specific data. This not only supports transparent and fair competition, but also facilitates essential collaboration between suppliers and grid operators. This collaboration will be essential in supporting the creation of new energy services that are based on costs and reflect real grid conditions. Market facilitation is provided by a central market operator (CMO).
The development of market facilitation can be divided into two waves. The first wave is driven by liberalization, which transforms the market from a bilateral model that uses point-to-point message exchanges between market players into a central model for message exchange—also called a data hub. This data hub is essentially different from the bilateral model, considering the difference in the interactions between the acquiring retailer, distribution system operator (DSO) and outgoing retailer.
The second wave is driven by digital innovation and the transition to sustainable energy. The data hub can support the market with additional services and third-party access. Also, by enriching data, it will provide pivotal information on areas such as grid condition, solar or wind generation capacity, and consumer preferences. This is significant, as grid operators’ future success will depend on their ability to provide data concerning renewable generation to all market parties.
Clearly, central market facilitation scenarios across the different countries are diverse. But, while energy markets have been changing for a long time, the impact of this transition on market roles is now more evident than ever before. As we have discussed in this white paper, the changing role for markets is driven by new technology applications and the need to move to a low carbon economy. The shift is now to a decentralized and optimized energy market, where consumers will play a central role in both managing the grid and adopting next generation energy related services. This is driving a paradigm shift in both market facilitation and market roles, and the energy market will have to evolve with these changes. In our next white paper on this topic, we will consider how the changing role of market facilitation is creating new market designs to support this energy transition.