FINE - Flexible Integration of Local Energy Communities into the Norwegian Electricity Distribution System

DSO-LEC interaction

As Local Energy Communities (LEC) form across Europe, several potential challenges for Distribution System Operators (DSO) arise. Because local energy communities introduce electricity generation and flexibility potential in the distribution grid, such as rooftop solar electricity generation and charging of electric vehicles, DSOs aim to ensure that these resources are integrated in a manner that does not compromise security of supply. Yet, because these resources are not operated by the DSO but by the LEC, the DSOs benefit from creating incentives that align the cost-optimal operation of LECs with their own objectives. This is otherwise known as “incentive alignment.” However, this requires well-designed price signals and tailored DSO-LEC interaction frameworks.

The LEC manager

The LEC manager is the connection point between the DSO and the LEC members. The LEC manager is important to the LEC members because the LEC manager ensures that the objectives of the LEC members are pursued. At the same time, the LEC manager is a legal entity that has financial and legal responsibilities on behalf of the LEC members, making it an entity that the DSO can interact with and trust as they have the position to be more reliable than individual consumers. In this way, the LEC manager is an ideal agent to facilitate the interaction between the DSO and the LEC. Also, the LEC manager is responsible for interacting with the members and their assets or their commonly shared assets. This simplifies interaction with the DSO and is still manageable for the LEC manager if the LEC is not too large.

Local coordination and the transfer of responsibility

In the FINE project, scenarios that describe potential pathways for DSOs and LECs have been introduced. In the “local coordination” scenario, the DSO retains their traditional approach by passively operating the grid. However, the regulation is significantly modernized to allow for a more decentralized approach, allowing LECs to absorb some of the DSO's responsibilities. An example of this approach is the introduction of LEC-level grid tariffs, where the LEC is metered on an aggregated level.

An alternative approach is a “capacity contract”, either through a connection agreement or by a dynamic grid tariff, where the LEC is free to operate normally whenever the grid is not congested. When the grid is congested, the DSO sends a signal to the LEC and requests the LEC to stay below the contracted capacity level, or in extreme cases, disconnects the LEC completely. This allows the DSO to keep a relatively passive operation style, where the responsibility of staying below the capacity level is given to the LEC manager. This simplifies operation for the DSOs because they do not need to manage many assets and contracts but transfer some of those tasks to the LEC. Yet, this kind of approach is not within the current regulation and would require some modernization of the legal aspects.

Efficient markets and the active DSO

The opposite to the local coordination scenario is the efficient markets scenario. Here, the interaction between the DSO and LEC is conducted through local flexibility markets (LFM), such as the market platform operated by NODES in Norway, Piclo in the UK or GOPACS in the Netherlands. Instead of forming contracts or agreements with the LECs, the DSO purchases flexibility through the LFM. In a sense, there is no interaction between DSOs and LECs in this approach, because the communication is conducted through the LFM. The LFM operator receives the bids, settles the markets, and conducts transactions, essentially being the intermediary between the DSO and the LEC manager.

If the market is efficient and has high liquidity, this solution is efficient, cheap and requires little communication. However, since LFMs are local, these market conditions cannot be guaranteed as there may be very few market participants available to solve specific grid challenges, such as congestions and voltage issues. Further, the DSO needs widespread measurements and operation software to act in these markets, requiring substantial interactions with the grid and with the LFM.

Different solutions, different interaction schemes

LECs can be integrated safely into the Norwegian power system and distribution grid in a variety of ways. The different scenarios represent different solutions, which again require different DSO-LEC interaction schemes. In the FINE scenarios, this interaction spans from long-term contracts to “daily interaction”. There is no “one-size-fits-all”, and LECs represent a new paradigm in the power system with many new decentralized agents. If this value chain of consumers, LEC managers, LFM operators and DSOs has a weak point, the value chain stops functioning.  

What is important in the FINE project is to research the necessary interaction frameworks, highlight their advantages and drawbacks, and finally synthesize the conducted research into a recommendation.