A number of new provisions and amendments to the Electricity Act (1997:857) entered into force on 1 June 2023. The new provisions and amendments constitute the final part of the implementation of the EU Electricity Market Directive in Swedish law. The Electricity Market Directive forms part of the EU’s clean energy package, which in turn aims to meet the EU’s commitments under the Paris Agreement. The new provisions and amendments to the Electricity Act result in greater customer protection in contractual relationships relating to the supply of electricity, among other things. It has also been made possible for major electricity suppliers to offer contracts with dynamic electricity prices. However, the rules on aggregation services represent one of the most significant new features of the regulations
The need for electricity is increasing both globally and in Sweden. Annual electricity consumption in Sweden is expected to amount to 330 TWh within 20 years. That is more than double the total consumption in 2021, which amounted to approximately 140 TWh. The greater demand for electricity is due to factors such as greater electrification in the industrial and transport sectors. The establishment of electricity-intensive industries, urbanisation, population growth and increased automation are also factors driving the demand for electricity.
In parallel with the rising demand for electricity, considerable development is also taking place in the area of electricity generation, with the focus on increasing the proportion of renewable electricity production. Greater electrification and the transition to renewable energy systems is fully in line with the global goal of combating climate change and its consequences. The developments also conform to the EU’s and Sweden’s commitments in the Paris Agreement to reduce greenhouse gas emissions. However, the transition means that electricity production will become more variable because production depends to a greater extent on the availability of energy sources such as solar and wind.
A KEY FACTOR FOR THE GREEN TRANSITION
Because electricity cannot be stored in the electricity grid, the higher demand for electricity and the green transition give rise to a greater need to be able to make use of flexibility in the energy system. Flexibility is mainly a question of changing and making use of input or output patterns in the electricity system. Flexible resources can thus be made available at both the production and consumption stages as well as in the form of stocks. Historically, flexibility resources have mainly been used at the production stage. One example of this is the use of the ability to control hydropower. Flexibility has also been used to some extent on the user side, particularly in the industrial and heating sectors.
Revolution in the electricity market: Benefit from flexibility and maximise your electricity use
Recent developments have been aimed at exploring the possibility of taking advantage of the flexibility of smaller electricity users. The aggregation services have an important role in this regard. In simple terms, an aggregation service works by combining and packaging small volumes of flexibility into larger units that can in turn be sold on the electricity market. The term “aggregation service” is defined in the Electricity Act as an amalgamation of multiple electricity users’ consumption or an amalgamation of electricity produced for sale, acquisition or auctioning on electricity markets. The amendments in question to the Electricity Act are mainly aimed at making it easier to take advantage of demand flexibility through aggregation.
An aggregation service that makes use of an amalgamation of electricity users’ consumption can be used to adjust demand for electricity by adjusting customers’ consumption on the basis of a range of market signals, such as reducing electricity use when the electricity grid is operating under a heavy load or increasing consumption when the price of electricity is low. In concrete terms, such a service may consist of offering electricity users the opportunity to charge electric vehicles at a favourable price at certain times when the price of electricity is low. The business model is based on the aggregator then being able to sell the reduction in consumption arising as a result of the fact that charging takes place at the agreed time as a support service in the electricity markets. An aggregation service can be financial and/or technical. An economic aggregator manages orders in the market and provides advice and offers to electricity users, as in the above example. Installing and using control equipment to start charging electric vehicles when the price is favourable is an example of a technical aggregation service.
FUTURE OPPORTUNITIES AND CHALLENGES FOR ELECTRICITY USERS
Overall, aggregation services are based on electricity users’ ability to be flexible. The services enable electricity users to participate more actively in the electricity market in order to influence their electricity prices and at the same time help reduce problems with shortage of capacity. Aggregation services also contribute to greater balance in the electricity system and, in the long run, enable efficient use of renewable production resources. Aggregation services thus facilitate the green transition.
The new provisions of the Electricity Act have therefore opened up business opportunities offering aggregation services to electricity users. The Electricity Act now stipulates that an aggregation service provider may not be prevented by other market operators from gaining access to electricity markets. Grid companies that acquire support services must treat operators providing demand flexibility through aggregation in a non-discriminatory manner compared with electricity generators on the basis of those operators’ technical capacity. An electricity user must also be able to purchase and sell electricity services other than electricity supply independently of its contract with an electricity supplier and without its approval.
Furthermore, an electricity supplier may not use unreasonable contractual terms to prevent a customer from using an aggregation service. Nor must grid companies impose conditions to make demand flexibility more difficult beyond whatever conditions are necessary for the secure, reliable and efficient operation of the cable network. However, the right to provide an aggregation service presupposes that someone has assumed a balancing responsibility at the point of delivery of the service, which relates in particular to any imbalances that the aggregation service may bring about.
Although the right to access the electricity markets is now prescribed by law, the regulations are by no means comprehensive. For example, questions relating to procedures and responsibilities in the market still remain. There are also a wide range of options in terms of types of contract, etc. At Lindahl, we are naturally monitoring developments and are happy to answer any questions concerning the new provisions.