Infrastructures for Energy System Integration

​​​​In an integrated energy system, network planning and operation are carried out via a holistic approach for both large-scale and local infrastructures. This includes all the energy carriers (electricity, gas, blended, hydrogen, CO2, heating, district energy, liquid fuels) and would cover a longer timeframe than the ten years required by the current network​​​planning.

Such integrated approach is generally missing in the current energy market design and regulatory framework, with only few exceptions:

  • The “Recast Renewable Energy Directive" (2018) establishes that Member States require electricity distribution system operators to assess at least every four years, in cooperation with the local heating or cooling operators, the potential for district heating or cooling systems to provide balancing and other system services and whether this would be more resource and cost efficient than alternative solutions.

  • The “Recast Electricity Directive" (2019) has established the obligation for TSOs to consider alternatives to network expansion such as energy storage installations, including power-to-gas facilities. It has also established specific and exceptional conditions for Member States to grant their electricity TSOs the possibility to develop, manage, or operate energy storage facilities while the current gas regulatory framework does not allow it.​

Network planning and operation: a holistic approach

ACER and CEER highlighted the importance of precluding network operators from investing in potentially competitive activities and open to the possibility of granting limited exemptions to invest in market assets to get the market started, following a careful analysis of cost and benefits of the proposed investment and its impact on competition, with some requirements and restrictions to avoid any market abusive behaviours.

ACER and CEER also issued the paper Position on Revision of the Trans-European Energy Networks Regulation (TEN-E) and Infrastructure Governance,  recommending the European Commission to:

  • Improve infrastructure development governance

  • Focus on the principles for PCI scope

  • Improve the TEN-E process

The European Commission Communication Powering a climate-neutral economy: An EU Strategy for Energy System Integration considers a new and holistic approach to infrastructure planning and operation as a key driver for decarbonisation via energy system integration. This would be achieved by, among others, reviewing the scope and governance of the Ten Years National Development Plan, as well as of the TEN-E and TEN-T regulations to support a more integrated energy system, the acceleration of investments in renewable-based district heating and cooling networks.​

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Market-based mechanisms for Energy System Integration

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​​Currently, the links in the energy sector between energy carriers (electricity, gas, heat) and between them and the consuming sectors (industry, buildings, transports) are limited.

The market and regulatory rules are designed separately.

Beyond the current electricity and gas market designs, the main market-based mechanisms currently in place are:

  • Emission Trading Scheme - ETS: the ETS currently applies to power generation and heavy industries only. CO2 and greenhouse gas emitting sectors such as shipping are left out.

  • Guarantees of Origin: as part of the Clean Energy Package, the “Recast Renewable Energy Directive" (2018) has extended the scope of guarantees of origin from 'electricity produced from renewable sources only' to 'gases produced from renewable and decarbonised sources, including hydrogen'. Discussions on whether the scope should be broadened in terms of energy/vectors, but also in terms of functions, are ongoing.

  • Storage: the “Recast Renewable Energy Directive" (2018) has clarified the definition of energy storage for electricity, which now also includes power-to-gas installations.

  • Flexibility markets: mainly focused on electricity (intraday, balancing, reserves). Currently a “circular economy approach" is missing (i.e. waste-to-energy).

  • Bidirectional energy flows: the current electricity and gas demand side response mechanisms mainly involve big energy intensive companies. A more distributed generation/consumption approach is often missing. 

​​One of the key elements of the European Commission Communication “Powering a climate-neutral economy: An EU Strategy for Energy System Integration" is to make energy markets fit for decarbonisation and distributed resources.

The European Commission plans to achieve this by:

 

  • Promoting a level-playing field across all energy carriers - by, among others, issuing guidance to Member States aligning non-energy price components across energy carriers, a possible proposal for the extension of the ETS scheme to new sectors, the revision of the Energy Taxation Directive

  • Reviewing the legislative framework to design a competitive decarbonised gas market which can easily integrate renewable gases

  • Improving customer information

 

Studies and impact assessments will be carried out in the next months and will contribute to the EC legislative revisions to be proposed by June 2021.

The main mechanisms currently in place
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The Agency is closely following the discussion at European level on the topic of Energy ​​System Integration, given the vast economic, health and social benefits a​​nd positive externalities to be brought by its efficient and effective implementation to the European and global citizens. As such, this section will be regularly updated with the latest and most relevant findings​.

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Technologies for Energy System Integration

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​​​​​​Most energy conversion technologies have not yet reached an efficient scale. They are likely to develop with an effective price signal, investments in research and development, and a system integrated network planning and operation.

Decarbonised gases, electrolysers, demand side response mechanisms and increased flexibility are likely to develop with more distributed generation and integrated market signals. 

The energy efficiency-first principle, together with the role of energy storage (thermal, gas, electricity, chemical) and the need for an improved access to and operation of the energy flexibility mechanism, are key elements to reach the decarbonisation and other energy system integration targets.

From a regulatory perspective, all technologies must be guaranteed a level playing field, so they can compete on the merits. Any obstacles or barriers to their equal treatment should be identified and removed, following an integrated energy system perspective.

Ensuring a level playing field
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Among the main technologies:

  • Combined generation of heat and power(CHP)

    • Gas CHP to produce electricity and heat, electricity CHP to produce electricity and heat, renewable energy CHP to produce electricity and heat

  • Pumps

    • Electric heat pumps, heat pumps, hybrid heat pumps, absorption heat pumps

  • Power-to-Heat (P2h), Power-to-Gas (P2G), Power-to-Liquid (P2L), Power-to-Cool (P2C), Power-to-Mobility (P2M)​

  • Renewable energy generation assets

    • Photovoltaic, thermal ​solar, solar heating, wind, hydroelectric, bio methane, biomass, biogas, marine and oceans, hydrogen, geothermal electricity, geothermal heat

  • Boilers

    • District heating/cooling

    • Electric heating

    • Heat boilers

  • Storage

  • Thermal storage: sensible (hot water), phase-change material (PCM), chemical reactions, heat storage

  • Electricity storage (electric vehicles, hybrid electric vehicles, home batteries, industrial batteries)

  • Chemical storage

  • Mechanical storage

  • Waste management

    • Heat waste

    • Industrial waste CHP

    • Buildings municipal waste CHP

  • Demand side response technologies

    • Electricity, gas, heating smart meters

    • Smart grids to allow load shedding/load shifting in buildings, industry and the power system

    • Smart charging that allows demand side flexibility in electrified transport

  • Transport

    •  Electric vehicles, hybrid rechargeable vehicles, biofuels, synthetic gas, hydrogen, smart charging, data hubs

  • Carbon Capture Utilisation and Storage (CCUS)

  • Networks

    • Electricity networks, gas (methane) networks, heat networks, thermal storage network, distributed generation and consumption networks (off-grid), hydrogen networks, blended networks, CO2 networks

  • Energy efficiency technologies and measures on buildings, industries, heating and cooling sectors

    •  Lightings, insulation

The Agency is closely following the discussion at European level on the topic of Energy ​​System Integration, given the vast economic, health and social benefits a​​nd positive externalities to be brought by its efficient and effective implementation to the European and global citizens. As such, this section will be regularly updated with the latest and most relevant findings​.

The main technologies
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Energy System Integration

​​​​​​​​​​​​​​​​​​​​​​​The decarbonisation of the energy system requires an increasing level of integration between its various components. Today, network operation and planning, market design, and regulatory provisions are developed separately by type of energy carrier.

Energy system integration refers to the planning and operation of the energy system as a whole - across multiple energy carriers (e.g. electricity, gas, heat), infrastructures, and consumption sectors (industry, buildings, transport) - by more strongly linking them with the objectives of decarbonisation, energy efficiency, affordability and reliability of the energy system.

It includes three complementary and mutually reinforcing concepts:

  • A more circular energy system, with efficiency at its core

  • A greater direct electrification of end-use sectors

  • The use of renewable and low-carbon fuels, including hydrogen, for end-use applications where direct heating or electrification are not feasible, not efficient or have higher costs.

The energy system integration is expected to be a dynamic and learning-by-doing process. The results will depend on the development of economic, technological, environmental, and social elements at local, national, European and global level, as there is not a “one-size-fits-all" solution for all Member States.​

What is the Energy System Integration?

At European Union level, the discussion on energy system integration started in 2018 with the European Commission's “Long-Term Strategy To 2050", which highlighted the need for a smart market and system integration. In June 2019, the Council of the European Union issued their “Conclusions on the future of energy systems in the Energy Union to ensure the energy transition and the achievement of energy and climate objectives towards 2030 and beyond", highlighting the key role of the energy system integration for a cost-efficient decarbonisation target, as well as the importance of citizens' participation and self-consumption via smart cities and energy communities in order to realise sector coupling.

ACER and CEER issued the Bridge Beyond 2025 Conclusion Paper in November 2019, which includes regulatory proposals for the decarbonisation and energy system integration targets.​

Following the release of the European Commission's European Union Green Deal at the end of 2019, the European Commission issued the Communication “Powering a climate-neutral economy: An EU Strategy for Energy System Integration" (July 2020), which proposes policy and legislative measures at EU level to gradually shape a new integrated energy system.

Studies and impact assessments will be carried out and contribute to the EC legislative revisions to be proposed by June 2021.​

​The Agency is following closely ​​​​​​the discussion at European level on the topic of Energy ​​System Integration, given the vast economic, health and social benefits and positive externalities to be brought by its efficient and effective implementation to the European and global citizens.  As such, this section will be regularly updated with the latest and most relevant findings​.

The European journey
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Changing Role of Gas

Changing Role of Gas

Future Regulatory Decisions on Natural Gas Networks

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What type of regulatory decision on natural gas lie ahead?

Europe’s ambitious energy transition and decarbonisation goals by 2050 point to a changing role for natural gas. Demand for natural gas is expected to decline over time as the decarbonisation goals lead to a substitution of natural gas with other energy vectors. Therefore national regulatory authorities (NRAs) will need to take regulatory decisions on a wide range of issues such as:

  • the repurposing of natural gas assets for their use as part of hydrogen networks;
  • the potential decommissioning of natural gas assets that become stranded; and
  • the reinvestment of assets that reach the end of their regulatory or technical lives.

ACER commissioned consultants DNV to carry out a study on the “Future Regulatory Decisions on Natural Gas Networks”. The DNV study, published in November 2022, addressing issues such repurposing, decommissioning and reinvestments of natural gas networks.

The information and the views set out in this DNV study are those of the author only, DNV, and may not in any circumstances be regarded as stating ACER’s official position, opinion, or recommendation. ACER does not guarantee the accuracy of the data and the statements contained therein.

What is repurposing, decommissioning and reinvestments?

Repurposing

The repurposing of natural gas pipelines for the use of hydrogen transportation will require transferring natural gas assets to dedicated hydrogen networks. This will require

  • identifying assets
  • defining the value of the asset to be transferred
  • deciding on any incentives for the TSO to transfer assets to hydrogen networks.

Decommissioning

The decline of natural gas could potentially lead to some natural gas assets becoming stranded. This raises regulatory challenges such as

  • identifying different types of decommissioning costs
  • allocating the decommissioning costs and the different measures to prevent asset stranding.

Reinvestments

As assets age and reach the end of their depreciation periods, NRAs will have to take decisions on whether or not to replace these assets or to extend their regulatory lives (where possible or appropriate). The regulatory depreciation times applied for natural transmission assets is often below the technical lives of the assets.

Changing Role of Gas

A bridge beyond 2025

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pipelines

The Bridge beyond 2025 paper jointly released by ACER and CEER in 2019, provides recommendations on the overall framework that could help in reducing the emissions of greenhouse gases and in increasing the availability of decarbonised gases.

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A bridge beyond 2025
pipelines
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Methane emissions

Emissions

​​​​​Methane is widely regarded as one of the main greenhouse gases and its emissions are considered to be the second most important contributor to climate change. In the context of the Green Deal and as a part of the clean energy transition, the European Union has launched a dedicated effort for reducing methane emissions in the energy sector.

The effort takes into consideration the global nature of the industry and that about 80% of natural gas consumed in the European Union is imported. Approaches dealing with methane emissions in the natural gas industry have to account for the entire gas supply chain link, as well as for technology-specific features.

What are methane emissions?
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​ACER is looking at the issue of methane emissions primarily from the viewpoint of sustainability, as a sine qua non for any undertaking in gas infrastructure. Sustainability is one of the criteria that must be met by all projects included in the TYNDPs and in the PCI lists. To achieve the 2050 climate goals of the European Union, a balance must be found between:

  • The scale of the problem and the tools to address it,

  • The costs and benefits of any possible regulatory measures,

  • Best industry practices, technical norms and regulation.​

What's the role of ACER?
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Infrastructure

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​​​​​​Cross-border energy infrastructure is the backbone connecting the European markets and allowing their integration. Gas pipelines, together with liquefied natural gas (LNG) terminals and underground gas storage (UGS) facilities, are the hardware supporting market integration, competition, and enhancing the security of supply in an efficient and sustainable way. If coupled with electricity, gas infrastructure can also support the energy transition towards a less carbon-intensive, and eventually carbon-neutral future.

Gas infrastructure offers flexibility, energy storage and back-up services which are already in place and of significant scale. Gas infrastructure is thus not just an object, but a tool that could contribute positively to the most profound decade of change in the European energy system.​

What is it about?
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​ACER's main tasks regarding trans-European gas infrastructure are performed in close cooperation with the national regulatory authorities and the ENTSOs for Electricity and  Gas. ACER monitors  the implementation of projects creating new interconnector capacity and the Union-wide network-development plans. If ACER identifies inconsistencies between those plans and their implementation, the Agency investigates and makes recommendations to the transmission system operators, regulatory authorities or other competent bodies concerned. 

Each year, promoters of projects of common interest report to ACER their progress. Based on these inputs,  ACER produces a consolidated annual report which highlights the development, construction and commissioning of the projects, as well as possible delays and difficulties in their implementation across Europe.

ACER fosters a proper assessment of the projects of common interest in terms of contribution to market integration, competition, security of supply and sustainability.

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Network Codes

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​​​​​​Network Codes and Guidelines are important instruments to organise access to the European Union's gas market. They aim at lowering barriers to entry for market participants, promoting market integration and improving market efficiency to the benefit of all EU citizens.

Why are the Network Codes important ?

The gas industry is based on a vast interconnected physical network consisting of pipelines, LNG terminals, and gas storage facilities. Access to the EU gas market depends on access to the cross-border gas networks. To facilitate networks' access across EU Member States, the Union law foresaw to harmonise the relevant market rules in a number of Network Codes and Guidelines.

There are currently four gas Network Codes covering capacity allocation, tariffs, balancing rules, interoperability and data exchange rules, along with a Guideline on congestion management.

  • Capacity Allocation: ensures auctioning of standard capacity products across the EU. The allocation rules foresee bundling of pipeline capacities at both sides of a border and selling them as a single product, thus simplifying trades between neighbouring systems.
  • Harmonised Transmission Tariffs: provides transparent and harmonised measures for the charging methodologies, revenue recovery, reserve and payable price across the EU. These rules facilitate competition and promote the efficient use and development of the gas transmission network.
  • Balancing Rules: market-based balancing rules financially incentivise network users to balance their positions with short-term products. In doing so, balancing rules contribute to the creation and development of short-term gas wholesale markets in the EU.
  • Interoperability and Data Exchange Rules: create operational, technical, communication and business rules for the proper operation and interoperability of gas transmission systems.
  • Congestion Guidelines​: facilitate the efficient use and maximisation of capacities in the gas transmission networks.​
Why are the Network Codes important?

​ACER and ENTSOG are responsible for jointly drafting the Network Codes, which are adopted by the European Commission through comitology procedure as binding regulations. The European Commission is also in charge of developing specific Guidelines, after consultation with ACER and ENTSOG. The Network Codes' and Guidelines' implementation takes place nationally, while the Agency offers guidance and monitors the effectiveness of the implemented rules at European level. ACER occasionally takes individual decisions in case of disagreement between NRAs on a cross-border issue, to ensure a consistent application of the legislation.

What is the role of ACER?
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Decarbonisation of Gas

Gas emissions

​​​​​​Currently, gaseous fuels used in the European Union are dominated by natural gas, a fuel of fossil origin. Natural gas is composed mostly of methane and is consequently associated with greenhouse gas emissions of carbon dioxide when the natural gas is used as fuel or as methane when the natural gas is produced, processed, transported and used.

Decarbonisation of gas can be achieved by different ways and means. In other words, decarbonisation entails different ways by which the greenhouse gas emissions associated with the life cycle of natural gas from its source to the end user can be avoided, eradicated, or mitigated.

On 15 December 2021, the European Commission published its hydrogen and decarbonised gas market legislative proposals. See the ACER-CEER Position Paper on Key Regulatory Requirements to Achieve Gas Decarbonisation (20 December 2021).

The current situation
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One way to decarbonise natural gas is to find ways to produce methane from renewable resources, such as biomass or natural waste. The resulting fuel is typically biogas (a mixture of methane and other gases) or biomethane (resulting from the separation of methane from the other biogas components).

Another way to decarbonise is to replace the natural gas with a sustainably produced non-methane one. Hydrogen produced via water electrolysis with the help of electricity from renewable resources is an example.

A third way is capturing the carbon contained in the natural gas, either before its use (pre-combustion, for example by converting it in a mixture of hydrogen and carbon dioxide destined for storage) or post-combustion, for instance by capturing the carbon dioxide and placing it in long-term geological storage.

There are other possible ways and means to decarbonise gas apart from the examples above. Methane emissions can be eradicated or minimised by applying a host of common sense practices, such as preventing venting during the exploration and production of natural gas, prohibiting flaring (especially when natural gas is produced as “associated gas” along with liquid hydrocarbons), avoiding fugitive emissions from valves and compressor stations, and making sure that burning is not incomplete. 

Many of these “common sense” approaches apply not only to natural gas, but also to methane-containing decarbonised gases.  It is therefore important to develop and deploy the relevant regulatory tools and methods for all methane-containing gases, decarbonised or not.

Decarbonised gases are only produced and used in the European Union on a minor scale, with the bulk being biogas and biomethane. Besides, most of the natural gas is imported (ca. 80%).

The ramping up of gas decarbonisation poses thus numerous challenges, ranging from assuring that the field is level for all available technology options and pathways, to supporting innovation by the right regulation, to monitoring, reporting and verifying greenhouse gas emissions across the entire international gas supply chain, to properly defining “green gases”, to making sure that competition is fair and market integration works.

Across this broad range of issues, ACER is committed to fostering the decarbonisation of the gas sector, by tackling different aspects in its regulatory tasks.

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How to decarbonise?
The decarbonisation journey
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