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The Clean Energy Package and Demand Response: Setting Correct Incentives

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  • Bert Willems

    (TILEC, Department Economics, Tilburg University, 5037 AB Tilburg, The Netherlands
    Toulouse School of Economics, Toulouse University, 31000 Toulouse, France
    Center on Energy Regulation in Europe CERRE, B-1050 Brussels, Belgium)

  • Juulia Zhou

    (TILEC, Department of Law, Technology, Markets, and Society, Tilburg University, 5037 AB Tilburg, The Netherlands)

Abstract

We describe how recent EU regulation affects demand response (DR) and highlight some of the remaining regulatory challenges from a legal and economic viewpoint. With the Clean Energy Package (CEP), the EU has opted for a fully market-based, consumer-centered approach for DR. The development of business models and products is left to a large extent to market forces. However, to enable the efficient development of those DR markets, network regulation has to adapt. (1) Network tariffs have to become more cost-reflective to provide correct incentives to market participants. The capacity tariffs have to increase, net-metering should be abolished, and optional tariff components for providing flexibility may need to be considered. (2) The regulation for distribution system operators (DSOs) may need to be fine-tuned to reflect their new roles. We present three scenarios: (a) a horizontal merger of unbundled DSOs under incentive regulation, (b) a DSO as a subsidiary of an integrated utility under cost plus regulation, (c) a transfer of some activities from DSO to TSO.

Suggested Citation

  • Bert Willems & Juulia Zhou, 2020. "The Clean Energy Package and Demand Response: Setting Correct Incentives," Energies, MDPI, vol. 13(21), pages 1-19, October.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:21:p:5672-:d:437179
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