Energy Regulation in Europe and Eurasia is Critical to Achieving Renewable Energy and Energy Security Goals

This article was featured in the February 2021 issue of the United States Agency for International Development (USAID) Europe and Eurasia Bureau US-Europe Energy Bridge newsletter. To subscribe, click here.

By M. Hisham Choueiki, Ph.D., P.E.

Principal Technical Advisor, NARUC International Programs

March 2021 - Technological advances in the power industry have evolved over time to meet consumer demand, drive economic growth, and raise living standards. While some of these developments have occurred relatively rapidly, much of the progress in energy sector transformation is the result of steady regulatory reform that occurs “behind the scenes” and often gets overlooked.       

Over the past 20 years, NARUC’s work has not necessarily grabbed headlines. However, the assistance it has provided to partner regulators in Europe and Eurasia has been critical to supporting the establishment and gradual development of competitive energy markets and achieving greater energy security in the region. For instance, NARUC has promoted the expansion of regional markets and highlighted the associated benefits, such as increasing generation diversity and the integration of renewable energy sources. In addition, NARUC has played a key role in driving regional collaboration, which, in turn, has allowed these countries to expand access to clean energy for their consumers and foster broader and more robust competitive markets.  

Finalized in 2019, the European Union’s “Clean Energy for All Europeans Package” is steering the region toward switching to renewable energy resources. It also sets forth economic and political conditions that would necessitate the retirement of old, inefficient, and high-emitting generation resources, encourage construction of clean utility-scale supply-side resources, and require investments in demand-side resources. This, accordingly, will result in driving the de-carbonization of the region and promoting clean generation and energy efficiency programs.

With this in mind, regulatory reform that addresses the reliability of renewable energy resources and the availability of those resources to meet consumer demand is increasingly important. To meet this need, NARUC continues to provide regional support to partner regulators in Europe and Eurasia that aims to simultaneously address 1) grid reliability and resource adequacy (i.e. maintain a sufficient amount of supply resources to satisfy consumer demand plus an additional reserve), and 2) the integration of renewable energy sources in transmission and distribution grids. To succeed in this effort, NARUC’s regulatory partners must develop a comprehensive understanding of what it means to:

  • reform, develop, and expand energy markets in the region
  • analyze supply and demand resources not only based on their cost, but also on their contribution to system reliability
  • evaluate the reliability of the power system as it grows more dependent on intermittent supply resources (e.g. solar and wind power)
  • assess the new and cleaner generation portfolio mix in relation to varying levels of customer demand to assure proper allocation of available power supply resources   
  • improve the accuracy of predicting peak electricity consumption as a means of securing adequate power supply resources to meet customer demand

Acquiring this knowledge is essential, as the complexity of power grid operation has increased exponentially. As renewable energy sources are not constantly available and predictable, they are known as “intermittent” and cannot be used to meet the increased day-to-day variability in customer demand at all times. Rather than planning to satisfy demand during the highest peak hour of the year, network operators and engineers must now use more sophisticated software tools that can not only predict the increase or decrease in hourly demand, but also the increase or decrease in hourly supply.  In doing so, they will be better equipped to maintain the reliability of the grid and ensure that the intermittent nature of renewable energy resources does not threaten energy security.

Through the use of a temporal scale (Days 0, 1, and 2), the chart below depicts the path countries in Europe and Eurasia must follow to regulate natural monopolies, develop functionally competitive electricity markets, and integrate renewable energy sources. Two essential elements under the Day 0 framework are reliability and resource adequacy standards.

In practice, following this path might mean drafting new regulations or training personnel on new approaches. In Kosovo, for example, NARUC recently delivered a highly sophisticated long-term forecasting tool for predicting peak electricity demand and consumption for each economic sector in the country to Kosovo’s Energy Regulatory Office (ERO). This “tool” is in the form of a Generic Algebraic Modelling System (GAMS) that the ERO will now use to determine the impact of varying policy proposals, including an increase in renewable energy sources, a reduction in system losses due to network upgrades, and the implementation of a carbon tax.

NARUC continues to support energy regulators across Europe and Eurasia to become thought leaders within their countries. By increasing regulators’ technical knowledge and capacity to understand, advocate, and enact reform measures, NARUC helps them play a stronger role in reforming the energy sector and fostering new economic opportunities in the region. NARUC’s foundational work may never trend on social media. However, it is absolutely critical to creating sustainable, reliable, and affordable energy systems that also contribute to the global effort to address climate change.    

This article is made possible by the generous support of the American people through USAID. The contents are the responsibility of NARUC and do not necessarily reflect the views of USAID or the United States Government.