Source - Ei Flexibility in Distribution Grids (2023)

Full title: Flexibilitet i distributionsnäten — Förutsättningar för ett effektivt nätutnyttjande (Flexibility in Distribution Grids — Conditions for Efficient Grid Utilization)

Published: April 2023 by Ei (Energimarknadsinspektionen)

Authors: Filip Hellberg, Jennie Nyberg, Fredrik Prinz Blix, Jenny Radkova, Linda Schumacher, Marie Swenman

Context: Sub-assignment 3 of a government mandate (August 2022) given to Ei, Svenska kraftnät, Energimyndigheten, and Swedac to develop conditions for realizing flexibility potential in the electricity system. Focus: promoting flexibility at local/distribution level where it is socio-economically efficient.

Key content

DSO flexibility tools (Chapter 3)

Ei identifies three categories of DSO flexibility tools:

1. Network tariffs (nättariffer) — cost-reflective tariffs that give customers price signals to adjust usage. New Ei regulations (EIFS 2022:1) require time-differentiated capacity tariffs by January 2027. Localization signals (different tariffs by grid area) discussed but not yet implemented.

2. Market-based procurement — purchasing flexibility services on a market or through competitive procurement. Art. 32 of the Electricity Market Directive requires this. DSOs must submit product specifications to Ei for approval — as of 2023, none had done so.

3. Non-market-based methods — primarily Villkorade Avtal (conditional connection agreements). Ei classifies these as non-market-based redispatching under Art. 13 of the Electricity Market Regulation.

CAPEX bias in revenue cap regulation (Section 3.2, 6.2)

A critical finding: the Swedish intäktsramsreglering (revenue cap regulation) creates a CAPEX bias — DSOs have economic incentives to invest in grid expansion rather than procure flexibility services, even when flexibility would be more cost-effective:

• Capital investments earn regulated return on the capital base (kapitalbasen)
• Flexibility procurement is classified as operating expenditure (löpande påverkbara kostnader) subject to efficiency requirements
• OPEX based on historical reference period with lag; CAPEX included from year of commissioning
• Ei acknowledges this bias and is working on methodology reform

Swedish flexibility market pilots (Chapter 4)

Three pilots evaluated:

Key findings:

• Primary driver: regional DSOs managing peak demand against their subscription to Svenska kraftnät’s transmission grid (abonnemang mot överliggande nät)
• Limited economic savings so far, but pilots enabled new customer connections and built crucial operational knowledge
• Thin market problem (sällanköpsmarknad): congestion events are infrequent and geographically limited → low liquidity, few activations, weak revenue for providers
• Supply: primarily flexibility from large heating plants (värmeanläggningar); in Uppsala and Stockholm, supply was generally sufficient when needed
• Skåne: demand exceeded supply — no new connections directly enabled
• Pricing: pay-as-bid (budprissättning) used; marginal pricing initially tested on CoordiNet but abandoned as technically challenging
• Products: primarily energy-only (“fria bud”); some availability products tested (tillgänglighetsprodukter)
• Minimum bid: sthlmflex lowered to 0.1 MW to increase participation
• Cascade model: bids not cleared locally forwarded to Svk’s mFRR market — tested on CoordiNet and sthlmflex

Barriers identified (Section 4.3–4.4)

1. Low revenue and rare activation — flexibility providers called too infrequently and paid too little
2. Svk temporary subscriptions as price cap — DSOs can request temporary subscription increases from Svk, which are sometimes cheaper than market flexibility, suppressing willingness to pay
3. Insufficient transparency — providers lack information on DSO needs and willingness to pay
4. Multi-market participation — providers want to participate across local, FCR, and mFRR markets but face technical and coordination barriers
5. Lack of standardization — different communication formats, qualification processes, and products across markets
6. Data access inequality — suppliers/aggregators have unequal access to customer metering data; solved by elmarknadshubb
7. Regulatory uncertainty — upcoming EU rules (NC DR) creating wait-and-see behavior
8. Knowledge gap — potential providers don’t know how to participate

Upcoming EU rules (Chapter 5)

Analysis of ACER Framework Guideline (December 2022) and expected NC DR content:

• Three sets of national terms to be developed jointly by DSOs and TSOs: (1) service provider conditions, (2) local market design, (3) inter-operator coordination
• Product qualification to use ex-post verification (product verification) as default for local services
• Baseline methodology requirements
• Transparency and information obligations

Market design analysis (Chapter 7)

Ei favors nationally integrated market design:

• Either DSOs trading on a common platform, or integration with existing markets (intraday, mFRR) using geographically tagged bids
• GOPACS (Netherlands) cited as example of using existing intraday platform for DSO congestion
• Availability products: Ei prefers energy-only to avoid resource lock-in, but acknowledges DSO need for delivery certainty
• Market power risk: geographic limitation of local markets creates risk of local market power and strategic bidding (inc-dec gaming)
• Pricing method: marginal pricing better for long-term investment signals; pay-as-bid used in practice due to simplicity
• Market operator: DSOs can currently operate platforms as network business, but law (ellagen 3 kap. §12) generally prohibits DSOs from non-network activities

Recommendations (Chapter 8)

1. Resume elmarknadshubb — central electricity market hub (like Norway’s Elhub) for equal access to metering data. Paused since 2020 due to missing legislation.
2. Establish Ei innovation center — regulatory guidance platform; possible stepping stone to regulatory sandboxes
3. No new national rules — defer to upcoming EU regulation (NC DR)
4. Continue improving: revenue cap incentives, tariff design, DSO-TSO coordination

Significance for the wiki

This source:

• Fills the “Swedish flexibility landscape: pilots, platforms, volumes” data gap flagged on Flexibility and Flexibility Market
• Provides Ei’s own assessment of the CAPEX bias problem — a structural barrier to flexibility procurement
• Documents the three major Swedish flexibility market pilots with concrete operational details
• Confirms the elmarknadshubb as critical missing infrastructure
• Aligns with and anticipates the Network Code on Demand Response framework