Regulatory Support Measures for Smart Grids and Promoting Flexibility

Written by Mihai Mladin

The energy sector is increasingly associated with the terminology "energy transition," and the main factors that determine and enhance this transition are the integration of renewable energy sources and digitalization. The smart grid concept par excellence is based on a series of real-time features and functionalities, by involving 5G technology, integration of algorithms for analysis and substantiation of decisions using big data, innovative services, and solutions to promote flexibility in the energy systems, responding to the challenges of managing the unpredictability of renewables.

In more and more fields, big data, and digitalization in general, are following a trend with very high dynamics. In business, digitalization most often refers to enabling, improving, and/or transforming business operations and/or business functions by leveraging digital technologies and a broader use of digitized data, turned into intelligence and active knowledge.

The effective exploitation of this valuable source depends, to a large extent, on the quality of the data analysis, interpretation algorithms, the associated ICT applications and cloud-based services for grid operation effectiveness and flexibility.

The development of such solutions and the wider analysis of the context of their implementation, addressed in a number of research projects such as edgeFLEX - Providing flexibility to the grid by enabling VPPs to offer fast dynamic control services, SOGNO - Service Oriented Grid for the Network of the future, and RESERVE – Renewables in a Stable Electric Grid, highlighted several aspects that need to be considered in order to facilitate the widespread adoption.

By default, and with technology advancement, the market reacts and proposes solutions to respond to these trends, but their adoption and implementation depends, to a large extent, on new measures and updates of the regulatory framework, to respond appropriately to both technical and market challenges.


Regulatory Measures to Support Smart Grids and Promote Flexibility

Whether we are referring to technical or market challenges, in the context of adopting and implementing smart grid solutions and promoting flexibility, the regulations in force can be both important obstacles and catalysts for the adoption of these solutions.

The energy sector is certainly one in which historical data on the operation of energy systems have been collected to a large extend over time. Moreover, the trend and dynamics of digitalization consolidate this positioning of the energy sector towards real-time and big data solutions to exploit this huge potential, with an impact on better monitoring, control, and optimization of operations.  With the increase of distributed energy and the challenges of integrating variable renewable energy, the main actors in the field (TSOs and DSOs) are increasingly able to collaborate and take on new roles. The trend of digitalization in supporting smart grid processes and flexibility by adopting and implementing real-time data driven solutions, also generates new actor profiles such as solution integrators, aggregators, prosumers, energy communities, VPPs and others who play key roles in this context of energy transition.

In general, business models that integrate and rely on these digital solutions that support smart grid development are service-focused, and regulatory actions aimed at supporting the cost of service can act as an effective lever in a "go to market" process.

In the same vein, when we refer to ICT solutions in the field of energy, to ensure the uniformity, transferability and sustainability of these actions, the inclusion of ICT requirements in the existing network codes may be another useful measure in regulation.

Moreover, these solutions integrating specific features and having a direct impact on the flexibility of energy systems, may be adequately supported by additional regulatory provisions, such as a Network Code on Demand Response and Flexibility, as well as other measures which will be further described in the content of the article.

Regulations to Support “Cost of Service”

Intelligent energy systems for monitoring and operating energy networks relay on the adoption and implementation of ICT real-time big data applications, which at an advanced level can be outlined in intelligent machine learning solutions. In most "go to market" scenarios that are analysed in energy research projects, these solutions are integrated and defined in the business model projections as services.

Going further on these scenarios, the integrators of such solutions, as aggregators or other new profiles outlined in this context, become the providers of these services. TSOs and DSOs, as potential beneficiaries, need appropriate policies and regulatory framework to encourage the solutions acquisition technically and financially, and generally their adoption on the specific market.

An impactful regulatory measure, meant to become an important lever in the context described above, refers to the provision of incentives and support for "cost of service".

To a large extent, the national energy markets of many European countries already have regulatory provisions to encourage and support investments in the development of energy networks aimed at improving the quality of their operation, which are related to CAPEX. The same objective, of operational safety and increasing the quality of energy services, can be achieved more efficiently through a mix of CAPEX and OPEX solutions, the latter reducing the intensity of the financial effort that should be supported by energy market operators.

In a broader OPEX support framework, the policies to incentivize should consider hardware components such as sensors acquisition for better insights regarding electricity grid status, but also telecommunication solutions for implementation of faster and more reliable data transmission.

ICT Chapter Requirements and Updates Within Existing Network Codes

In the same context and from the same perspective of regulation, an important aspect refers to ICT chapter requirements within existing network codes, and their dynamic update.

At the European level, TSOs have a well-developed and well-founded regulatory framework. Most of the research work has been focused on a time perspective up to 2020, and on the implication of RES at transmission network level. However, it is widely accepted that much of the growth of renewables beyond 2020 may be based on decentralized generation. So far, no thorough analysis was done beyond transmission level, which means that the distributions networks are at the current state insufficiently analysed and tested, which may result in additional future challenges through unidentified behaviour.

Regarding transmission, the European Commission has defined a set of network codes with two associated objectives: the first leading to the completion of the EU internal energy market, and the second to achieve the 20% target for renewable integration by 2020. Therefore, this initial target of 20% renewable energy sources (RES) was the basis for the definitions of the current set of network codes, and the existing design components of the ancillary services are meeting the same criteria.

On the way to exponentially increase of variable renewable energy and digitalization, several technical and regulatory challenges need to be considered, and amendments to the existing network codes and ancillary services are necessary. It refers to a series of critical changes and adaptations, from a technical point of view, as frequency and voltage control, to support the stability, safety, and optimal operation of the energy system, with regulatory implications both from this perspective and from that of ICT aspects, as is the case of ICT chapter requirements within existing network codes.

It responds of course to the context of exponential increase in the degree of involvement of ICT technologies in energy solutions, to ensure primarily compliance with uniformity and transferability requirements, and properly supporting the main technical challenges:

  • To enable new technics for voltage stability control in the power grid by connecting a huge number of communication end points in the future.
  • To enable the new technique for online inertia estimation that will solve the current problems, i.e., decreased system inertia because of penetration of distributed energy sources.
  • To enable the new technique for frequency stability control that will solve the existing power grid problems, i.e., to reduce the frequency variance.
  • ICT, specifically 5G and edge cloud computing, will enable the new concept of low-cost PMU devices that request extremely high sampling data rates and ultra-low latency communications performance.
  • To enable the advanced technique for optimization of VPP operations that will improve current energy market trading.
  • ICT will enable the advanced energy flexibility aggregation and trading system, i.e., the new interactions between energy market and DSO fast dynamics techniques that will further improve stability of the power grid.

Regulating VPPs as New Participants to the Electricity Balancing Market

Nowadays, the Electricity Balancing Market (EBM) is a very important component of the power systems operation. By the instrumentality of this structure, the power system operators are provided with the necessary tools for controlling the frequency, both in normal operational conditions and in case of outages. This is also critically required to improve the power balance in power systems with high penetration of non-synchronous devices.

Considering the importance of the EBM in current power systems operation, the requirements for acceptance as a participant are very detailed and strict. The status of participant allows the firms to make offers and receive payments on this market. Once a legal entity receives the status of participant on the EBM, its behaviour is carefully monitored by the power system operator, which is normally the EBM operator as well. In case the participant is not fulfilling its contractual obligations, the penalties start from financial fines and may go up to the cancellation of the participant status.

Until recently, the VPPs have not been considered reliable enough to be accepted as an EBM participant. However, the developments in the software platforms used for coordination of the VPP’s components operation have led to a greater acceptance from this perspective.

There are disparate initiatives by national regulators belonging to different European countries to address the role and responsibilities of VPPs in this context, but without a consistent approach, guided by a set of good practices and providing sustainability.

The findings and results of the edgeFLEX project are aiming to consolidate this acceptance trend and allow the project members to promote VPPs as a valuable participant of the EBM in the power systems where this approach is not yet implemented.

New Rules for the Management of RES Electricity Generation

Starting from the example of such an initiative in Germany, where there are extensive changes ahead for grid operators in terms of redispatch and feed-in, the legislature has extensively revised the requirements for the curtailment of generation plants in the event of grid bottlenecks and voltage problems with effect from 01.10.2021. It refers to the management with the passing of the Network Expansion Acceleration Act 2.0 (NABEG 2.0).

In the future, all grid operators will be in position to solve their grid congestions using market-oriented actions, by providing financial compensations. In addition, new contracts will have to be drafted, negotiated, and concluded. The burden on each grid operator is expected to be high. All generation facilities, including RES plants and Combined Heat and Power (CHP) plants from 100 kW installed power, as well as plants that can be remotely controlled by a grid operator at any time (this essentially concerns controllable PV plants up to and including 100 kW installed power), are included in the redispatch.

The implementation mechanisms for the redispatch of RES and CHP plants have also been redefined. In the future, the balancing group manager of the generation balancing group will be entitled to perform balance adjustments. In addition, the plant operator is entitled to receive financial compensation for the lost revenue, as has been the case in the past. In the future, shutdowns will be based on planned values and forecast data. In the event of a grid bottleneck or voltage problems, the grid operator having this problem in the grid, must decide which generation plants in its grid or in other grids are to be curtailed to eliminate or avoid the problem. In addition to the effectiveness of the measure, the grid operator must also consider the costs caused by the curtailment (on both sides of the bottleneck, if applicable) as part of an overall assessment and form a "merit order" (deployment sequence) for the redispatch on this basis. The measures that are "expected to cause the lowest costs overall" are then to be selected. For Renewable energy plants and CHP plants, imputed (i.e., fictitious) costs are used as a reference in this respect. These imputed costs are determined with the help of a factor to be defined by the Federal Network Agency (BNetzA), which is to be selected in such a way that RES and CHP plants are only derated if otherwise five to fifteen times the non-priority generation would have to be curtailed. The factor can be determined differently for RES plants on the one hand and CHP plants on the other.

By applying this type of rules, adapted to the requirements of VPPs and standardization at the European level, a new source of income is effectively created for VPPs and its components, and a sustainable impact on flexibility.


Conclusions: Source of Well-Founded Regulations

The evolution of the power sector is a continuous process, with challenges, but also with answers given by the increasingly complex and effective solutions supported by the technological progress. A variety of distributed energy resources and improving computation, communication, and control technologies create an unprecedented degree of choice for DSOs and electricity consumers, which are poorly guided by incentives and other support measures from the perspective of regulations. Through appropriate regulations and policies, we must address both the technical challenges of the adopted technological solutions, as well as the market challenges that may arise.

The regulatory measures described above materialize in a set of recommendations for the effective support of applications and energy digitalization from the DSOs, TSOs and other innovative actor profiles perspective, within smart grid and flexibility context.

They should be also properly linked and respond to a set of key regulatory principles of the governance framework for future electricity networks, as described below:

  1. Efficiency of the Investments and Costs
    It is well-known that in the power sector all the costs are in the end included in the energy price and therefore covered by the end-user. At the same time, maintaining an affordable and sustainable electricity price on long term is a major goal for all EU members. Under these conditions it is very important to optimize the adopted technical and regulatory measures to achieve the maximum impact for the safety in operation of the power systems, closely monitoring the financial impact as well.

  2. Collaboration at the Regional Level
    Natural resources are not equally distributed among EU members and therefore it is necessary to increase the collaboration beyond the national borders, to make full use of the existing capabilities. The cost for the activities necessary for the day-to-day operation of the power systems must be optimized at a regional level rather than national level as is today. Putting in practice of this principle will require in the first place the harmonization of the regulatory and legislative framework among EU members and in the second-place development of regional structures like control and coordination centers able to provide a proper resource transfer when needed.

  3. Transparency and Predictability
    One of the most important results of the unbundling was the development of many companies and firms, private or state owned, linked together in a very intricate activity. In many cases, the economic interest of these legal entities was contradictory, or they were in a direct competition for providing services or resources. Obviously, the society interest is to support the development of those entities that are helpful for the power systems operation and to restrain the development of the entities that are only taking advantage of different administrative of regulatory mismatches, thus increasing the electricity prices at end-user’s level without good reasons. Providing a transparent and predictable regulatory and legal framework will help the existing or potential investors in the power sector to develop business plans sustainable on long term and, as a result, the electricity price will be under control.

  4. Priority
    Taking into consideration the complexity of the power systems and electricity markets operation and the challenges generated by the transition from nowadays situation to up to 100% RES it is very important to accurately identify the priority scale of the necessary measures. It is well known that a good rule may have bad results if it issued to early or may have no results if it is issued to late (or something in between) so the timing of the regulations is of outmost importance. A proper identification of the priority and sometimes urgency of a measure will bring benefits from both: time point of view (by reducing the overall duration of the process) and financial point of view (by effectively supporting the next steps and thus reducing the costs of the whole process).

  5. Long Term Continuity
    The energy transition process built on higher renewable energy integration, and digitalization needs to be designed and followed as a whole. Being necessary to make sure that measures taken in the first stages, although apparently useful at that moment, are not hindering the implementation of future stages by becoming obstacles that must be removed. In this way of thinking, every step must be coordinated with the existing and future conditions and necessities so that both to be answered properly.

  6. Societal Acceptance and Involvement
    Acceptance and involvement of the society should not be approached separately because they are synergically connected. Acceptance will bring more involvement and more involvement will bring more acceptance supporting in this way the development process towards digitalization and implicitly Big data applications. Based on the experience gained so far in implementation of several projects on digitalization of energy, the above-mentioned principles are not independent of each other and, they are connected in a hierarchical structure. The most important principle proved to be “societal acceptance and involvement." Failing to follow this principle will, most likely, leads to significant difficulties in implementing the necessary measures, no matter how much they are justified from the technical and economical point of view. On the contrary, the action plans developed according to this principle proved to be much more easily and even cheaper to be put in practice.

The principles described above are the basis for the analysis and the algorithm for defining and substantiating the proposals for completing the regulatory framework. These have been subject to extensive consultations with all categories of stakeholders, including industry representatives, energy experts, policy makers and regulators.


List of acronyms:

  • ICT - Information and Communications Technology
  • DSOs - Distribution System Operators
  • TSOs - Transmission System Operators
  • CAPEX - Capital Expenditure
  • OPEX - Operating Expense
  • RES - Renewable Energy Sources
  • VPPs - Virtual Power Plants
  • EBM - Electricity Balancing Market





RESERVE Project - Renewables in a Stable Electric Grid (website:

SOGNO Project – Service Oriented Grid for the Network of the future (website:

EdgeFLEX Project - Providing flexibility to the grid by enabling VPPs to offer fast dynamics control services (website: – This is a project under implementation, funded through the European Union's Horizon 2020 research and innovation program, under grant agreement No 883710.




This article was edited by Jenny Zhou.

To view all articles in this issue, please go to May 2022 eBulletin. For a downloadable copy, please visit the IEEE Smart Grid Resource Center.

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Mihai Mladin is currently Head of Projects department within the Romanian Energy Center. His experience is over 15 years in management consulting, EU funding and technical assistance projects, holding the positions of manager and senior consultant in a multinational, cross-industry environment.
He is certified in Project Management and Business Process Management, having an extensive experience as Project Manager and Senior Advisor in the implementation of 11 large international energy research projects, funded through the H2020 and ERASMUS programs, but also in several transnational and cross-industry management consultancy projects, business development activities and administration of state aid schemes. In the research projects in which he has been and is currently involved, he has coordinated the work packages on business modelling and economic impact assessment, policies and regulations.

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