Which CEE markets are ready for demand-side flexibility (DSF)? Which countries have the most significant potential, and what are the barriers to large-scale DSF implementation? We discussed these questions during a webinar organized by smartEn on the future of DSF in Central and Eastern Europe.
A presentation of the 2022 European Market Monitor for DSF, published by LCP Delta and smartEn - Smart Energy Europe, served as the basis for further discussions.Chief Product Officer of Nano Energies, Jan Novák, and head of Business Development of Navitasoft, Kornél A. Balogh, complemented the data with practical insights from the perspective of companies participating in the CEE flexibility markets.
The DSF Market Monitor for CEE (available here) provides a high-level perspective on the progress of the CEE region and paints a clear picture: the CEE region is considered the "land of opportunity" for DSF markets. Although many positive developments in recent years suggest that the markets are slowly opening up to DSF, serious regulatory barriers still prevent DSF from expanding into the mainstream of Ancillary Services. This blog post will take you through the most exciting findings and try to answer the question on everyone's lips. Where is the greatest potential, and what indicators should we be watching?
Ancillary Services comprise the primary revenue stream suitable for DSF in the CEE. Market Monitor looks at the potential size of the flexible market through the lens of TSO spending. In other words, how much do TSOs spend on Ancillary Services that should be opened to DSF?
„Spend of TSO for purchasing Ancillary Services has nearly doubled across Europe over the course of 2022 compared to the previous year due to high cost of gas."
Larger countries appear more promising regarding DSF potential, with higher TSO spending. For example, Poland spent €1 billion and Romania €0.7 billion on ancillary services last year*. This makes Poland and Romania "the favorites" for future development, according to the 2022 European Market Monitor for DSF.
Paradoxically, Poland has the greatest need for DSF but has yet to open its markets for ancillary services. Such inconsistencies accompany the implementation of DSF across the CEE region.
„Looking a little more at the details for independent aggregation, there are even more barriers from compensation rules. In Romania, for example, independent aggregation is allowed. However, the contractual compensation with the balance responsible party is still required."
*Note: Poland and Romania still did not adopt standardized European products for frequency regulation like FCR, mFRR, or aFRR. Therefore these countries have paid higher prices to stabilize their networks precisely because they do not have suitable products with other European countries. If they did, they could more easily share capacity across Europe, and the price would decrease.
Despite the great potential, Poland, Romania, and the rest of the CEE still need to work on effectively enabling independent aggregation, a severe barrier to large-scale DSF implementation.
Given these regulatory constraints, CPO of Nano Energies, Jan Novák offers an alternative view on "who is the next big thing" regarding market readiness. He sees the most significant potential for DSF in Hungary, which is, from a regulatory point of view, closest to fully enabling DSF as it allows independent aggregation.
„In terms of legislation, Hungary is the closest to enabling DSF. We know from other markets that when the independent aggregation is introduced, participation for DSF increases quickly."
While Hungary is the closest to implementing the European Commission's Electricity Market Design from 2019, many countries, such as the Czech Republic, Slovakia, Bulgaria, and Slovenia, are still waiting to allow independent aggregation, as the Balance Responsible Party (BRP) agreement is still required.’
According to Jan Novák, there are other indicators to look at when comparing countries in terms of readiness, such as the volumes tendered within the short-term markets and the price of Ancillary Services, which vary widely across the region. Hungary, which allows independent aggregation, has high costs for Ancillary Services, and 100% of the volumes are tendered within daily and monthly auctions; Hungary is well ahead of countries such as Slovakia or the Czech Republic.
Access the full webinar recording to learn more about the topics discussed, including DSO flexibility, local energy communities, a deep dive into the Czech and Slovak markets, and the technicalities of flexibility aggregation in Hungary.
See the whole webinar from the record:
