Post Interview November 25, 2021

Christian Zinglersen – Director of ACER

ACER is working to create a single market for energy which is clean, reliable, and affordable. Its overall purpose is achieving a transition of the European energy system in line with the political objectives set, reaping benefits of increased energy market integration across Europe, and securing low-carbon supply at the lowest possible cost for Europeans.

What is the ambition for ACER, and your industry, in relation to energy transition?

Our ambition with regard to the energy transition specifically is to help facilitate it with the means, tools and mindset at our disposal. The energy transition for Europe is a vast industrial transformation, the scale and speed of which we haven’t seen since the Second World War. There’s a need not only to be very innovative, but also to make sure we leverage the power of trade, in this case energy trade, across borders and sectors. Without this, it will be difficult to achieve at an acceptable cost to society.
Our value is our role in facilitating energy market integration across borders, but also in terms of broader energy system integration – in part, by drawing together the energy regulators across Europe.
We have to help facilitate this vast industrial transformation by driving what lowers costs along the way. This is not only efficient (obviously a good thing in itself), but it also links directly to affordability of the wider effort. This is an important element. In my view, the current dynamics in Europe demonstrate that affordability ultimately equals acceptability. As such, this is part of our mission statement of sorts.

In the future energy landscape, what role do you see consumer-owned devices playing?

The major regions around the world will see a massive increase in electrification in coming years. According to the International Energy Agency’s market update in May, the amount of renewable electricity capacity added in 2020 rose by 45% to 280 gigawatts (GW), the largest year-on-year increase since 1999.
In 2020, renewable energy sources generated more electricity than fossil fuels in Europe for the first time. As much of the world’s increasing electricity needs will be met with intermittent renewables, the flexibility requirements of the system will increase by an order of magnitude higher or more. So it will be necessary to draw on consumer-owned devices simply because they represent significant flexibility potential.
Then there’s the additional aspect of efficient use of the system. If we want to make this transition happen at the lowest possible cost, it would be reckless not to take the potential of consumer-owned devices into account for supply-and-demand balancing.

How can ACER help drive this change with consumers?

One of ACER’s roles is providing the methodological underpinning for future resource adequacy needs – or the ‘how to’ for assessing whether lights stay on, to put it simply.
As part of the EU’s ‘Clean energy for all Europeans’ package, we have been working with ENTSO-E, the European Network of Transmission System Operators, on the European resource adequacy assessment (ERAA). This is a critical European-level project that will help inform national decisions.
Late last year, we published decisions on the methodology for the ERAA (and related so-called issues on the value of lost load, the cost of new entry and the reliability standard). Member States set a reliability standard that represents a trade-off between the benefits of having less customer disconnections and the cost of having more resources, including generation and demand response. The reliability standard indicates the necessary level of security of supply of Member States. By comparing these results, resource adequacy concerns are identified and the need for additional measures (e.g. temporary capacity mechanisms) assessed.
So how is this relevant for demand side response, you may ask? Well, if these methodologies fail to factor in adequately the contributions of demand-side response, the risk is not only that we fail to activate the most efficient resources in balancing the system but also that we may hold back otherwise innovative offerings. This would occur because other measures might be put in place that weaken the price signal for ‘drawing in’ these dynamic, integrated and digitally enhanced contributions.
Very much related to this, another of ACER’s roles is to monitor barriers to entry for new market participants, such as new platforms or aggregation services, and to propose recommendations around these.
This is part and parcel of a broader awareness-raising role for us. Many policymakers are, very rightly, worried about security of supply. But on the other hand, they are also very interested in technology innovation, business model innovation, new players, digital opportunities and so on.
Europe has considerable strength here versus other regions in the world, and policymakers want to enhance that, too. We can play a role in bringing differing viewpoints together, showing what might need to be tweaked in terms of adequacy appreciation as well as demand side participation, so both principles are met and reconciled.

How do you believe customers should be engaged in this change?

For individual household customers, there are opportunities for engagement in the retail market, for instance by switching to suppliers with more innovative offerings, not just lower prices. However, I think there will be a difference between the engaged and less engaged customer.
Despite it perhaps being economically advantageous, behavioural aspects can come into play. Some consumers may not want to be bothered to engage in the market simply because they have other priorities. Convenience does not always match efficiency. So, at an individual household level, engagement may move from niche to mainstream at some point, but I don’t think the market will end up encompassing everyone.
On the professional customer side, however, I feel there is a ‘rocket ship’ of opportunity, and innovation is happening at full speed! It’s great to see the market developing so quickly, with so many synergies on the cards.
The professional customer can aggregate different assets, pull them together into a multi-service offering, whether it’s an energy company, a technology company or a home-security company. There’s huge opportunity because here you can approach individual households and offer them multi-service propositions, not just price propositions. If you can make that easy and convenient, with some savings thrown in, engagement in this ‘new energy sector world’ is likely to increase across the board.
As such, it is great to see companies like Equigy growing so quickly and helping facilitate this new context.

What are the biggest challenges in relation to sector coupling?

One of the key considerations is the need for build-out of infrastructure with the added complexity of knowing what is the right infrastructure to build: is it classical transmission level lines? Is it increased distribution because of more distributed assets? And down-the-line perhaps competing propositions of low-carbon gas infrastructure. Building-out infrastructure and having a framework that can be broadly accurate in terms of meeting future demand needs is a big challenge.
Looking at electricity for instance, the main element delaying transmission level infrastructure today is permitting delays. Almost half of electricity transmission projects within the list of so-called European Projects of Common Interest (PCIs) are stuck in the permitting phase. Some delays relate to planning and environmental considerations, others to local opposition due to competing views or perspectives. If we look at this from the perspective of a massive increase in infrastructure build-up needs, one wonders how we will overcome that without considering other approaches.
The other component is more on the planning side. How do we best ascertain from a regulatory point of view, that a certain type of infrastructure is broadly warranted, given likely demand needs?. No one has a crystal ball, so there’s an element of risk, of course, in ascertaining future developments. How do we best do that?
And because of the integration of the sectors, it’s becoming much more complex because there are competing offerings there with different cost-benefit dynamics. It’s not easy to be a planner or regulator who looks at those plans and has to make a call on behalf of the end-consumer.

What will we have achieved by 2035?

Well, if I were to venture a positive look into my ‘crystal ball’, by 2035, electricity will be heavily decarbonized, well integrated and very demand-side responsive. It will draw on economies of scale, it will reap resource endowments from long distance towards demand centres in a complex interplay with increased distribution level balancing. This means, great, in 2035 we ‘tick the box’ on these elements and move on to something even more difficult, namely tackling those hard-to-decarbonize areas of the economy, particularly heavy industry or heavy-duty transport.

What does the energy transition mean to you?

In a professional sense, it’s everything I want to get up for in the morning and work hard on. Personally, it’s very motivating. The energy transition demands dynamism, excitement, challenge … it’s something very valuable to throw oneself at without knowing what the answer is.

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