Tomorrow’s European T&D Market: Toward New Markets and Technologies

By Jos Wetzer, Konstantin Petrov & Peter Vaessen, KEMA

The European T&D markets and network lie at the heart of the energy system. They must evolve to meet the challenges ahead and to provide all customers with a highly reliable, cost-effective and sustainable power supply. An integrated market-and-technological approach is a prerequisite for the power grid of Europe’s future.

Substation of Eccles in the United Kingdom.
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Over the past 15 years, almost all countries in Europe have restructured their electricity markets, driven by the European Directives. The European experience is unique in the sense that it combines opening each national market to competition and integrating these markets into one European market. Transport and distribution remain highly regulated to assure the security of supply. Strong regulators and price control are the main cornerstones of a successful T&D market. At the same time, driven by market developments, environmental awareness, aging infrastructures and technological evolution, Europe is preparing for its future power grid.

Steady Progress

The European liberalization process shows steady progress but still needs a number of issues to be resolved before a well-functioning European electricity market is achieved. Furthermore, the European Commission’s 2006 Green Paper “A European Strategy for Sustainable, Competitive and Secure Energy” suggests actions to meet key objectives of a unified European Energy Policy, including security of supply, environmental sustainability and competitiveness. The EC energy package issued in January 2007 formulates a set of measures dealing with the main issues on energy policy, e.g. infrastructure and energy technology, and includes an action plan for energy efficiency in Europe. This affects the T&D market in several ways.

National in Scope

In recent years, the largest European utilities continued to increase their share in foreign companies. On the whole, however, the electricity markets remain national in scope and generally maintain the high level of concentration of the pre-liberalization period. The same is true for the T&D market. In Germany alone, there are still several hundreds of so-called “Stadtwerke,” or regional grid companies, besides some major integrated energy companies.

A hot topic is the unbundling of supply and infrastructure. Although current legislation requires legal and functional unbundling, most Western energy companies are still (functionally) integrated. The UK market is an exception in that sense. Alternatives proposed include ownership unbundling and establishment of Independent System Operators (ISO). Ownership unbundling should eliminate adverse incentives, but it may also reduce the inherent synergy between networks and power generation, at the possible cost of the quality of supply. Some European countries, like Hungary, Italy and Greece use the ISO model: Network operators are a separate entity and do not own power plants and do not discriminate between power producers. This requires new interface rules between the system operation and transmission activities. Difficulties may arise in the coordination and decisions with respect to operation, planning, maintenance and construction activities. For example, transmission constraints may depend on system operation in the short term, but on network investments in the long term.

Cross-border Transport

The market’s competitive strength depends on the strength of the transmission system and the capacity of interconnections that facilitate cross-border transport of electricity between different regions and countries. The gradual establishment of the internal market has resulted in a remarkable growth of cross-border trade in electricity. Congestion has been observed. The causes include: constraints at cross-border lines and within individual countries, and insufficient regulatory incentives for extension of cross-border capacity. This congestion limits the opportunities to exploit the existing economic export and import potential between different markets. Networks are operating each year closer to their physical limits with an increased probability of temporary supply interruption.

Many countries and regions are still energy islands, largely cut off from the rest of the internal market. This holds true, in particular, for the Baltic States and the new member states in South-East Europe.

Congestion Management

One way of dealing with congestion is to support the development of an effective energy infrastructure in Europe by identifying and prioritizing infrastructure projects, providing a coordination framework, streamlining authorization processes, monitoring progress and improving network access conditions. Such measures should be supported by a more effective framework for congestion management.


It is estimated that until 2030 some 500 billion Euro will be needed as an investment in the European T&D system. These expenses cover replacement of classical T&D equipment like lines, cables, transformers and switchgears. To a large extent they also include new equipment such as power electronic controllers and conditioners or phase shifting transformers, HVDC connections and advanced monitoring and control equipment.

Prominent Drivers

In the future, both the energy consumption and the sharing of electricity will continue to grow, as will the world’s dependence on electricity. Certain prominent drivers, however, are expected to strongly influence the direction and pace of further evolution: the availability of energy resources, environmental concerns, demographics and economic growth, market developments, and emerging technologies. Different evolutionary and revolutionary scenarios may arise from these drivers, but regardless of the scenario a number of characteristics can be expected for the future power system.

The Future European Power Grid

The future trans-European grids must provide all consumers with a highly reliable, cost-effective power supply, fully exploiting the use of both large centralized generators and smaller distributed power sources throughout Europe.

KEMA’s Vision of the Future Grid
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Energy generation and transmission & distribution networks will be operated differently. At present, new generation options such as dispersed generation and renewable energy sources are being introduced in today’s power system. They are expected to supply at least 15 percent of all electricity requirements in 2010 in the European Union. Small to medium sized (<100 kW – 50 MW) conversion technologies-including high speed micro and mini power turbines, fuel cells, power electronics, and energy storage-will be installed on the electrical network over the next years. Their share will continue to increase in the decades after 2010. With the increase of these sources, the power system will become increasingly difficult to manage unless the grid is adapted to handle strongly varying amounts of power from dispersed sources. Additional challenge for the network infrastructure, therefore, is the integration of required electricity production of electricity from renewable sources. Furthermore, agreements on power quality will have to be settled.

Customer Control

Further in the future, customers will have more control on their use of energy-e.g. by choice in the degree of reliability, by automated energy saving schemes and power quality for sensitive or crucial equipment or processes requiring high availability and excellent power quality. Real-time price information systems and advanced control of power flow are being developed and are essential for achieving the goals.

Role of Technology

The shift toward small-scale dispersed generation results in a strong innovative activity on local distribution grids (including mini and micro grids). However, large-scale transmission systems will also evolve.

There are many examples where technologies have provided solutions to our future needs. As far as transport and distribution is concerned technologies of particular interest include:

  • Materials will improve and become cheaper, enabling technologies such as superconductivity or low-loss smart power electronics;
  • DC technology will help to reduce transmission and distribution losses and to enhance stability;
  • Electricity storage will become increasingly important as the share of wind and solar energy will increase in the near- or medium-term future;
  • Offshore techniques will enable offshore generation, storage and transmission; and,
  • Wireless energy transmission for charging portable computing and communication equipment will become commonplace.

Smart power electronics will be a key technology for future grids to allow power flow steering at the transmission level (bulk power), bi-directional power flows at the local distribution level, more balancing needs (due to fluctuating nature of generation) and availability of real time price information and options for differentiating power quality (PQ) and reliability.

On the one hand, new robust technologies will be selected to accommodate future grid requirements. On the other hand, new technologies themselves may change the nature of the future power grid. Examples are hybrid/electric cars, domestic micro CHP, current limiters for distribution networks, but also automated demand response systems or a transmission grid in the sea connecting the wind power parks.

Interacting Systems

The electricity system of the future will, therefore, consist of a global or regional transmission network with large-scale generation, connected to local distribution systems containing numerous small-scale generators. Both interacting systems form the sustainable, reliable and affordable power system of the future.

The future transmission system will be similar to the present one but will have to accommodate more and varying power flows due to trading and the presence of large-scale intermittent sources. The local power distribution system may be very different from today, involving nearly self-supporting rural, urban or industrial areas with a variety of generators based on renewable energy or on combined heat and power.

Joseph M. Wetzer is principal consultant with KEMA (Arnhem, the Netherlands) and a part-time professor at the Eindhoven University of Technology in the Netherlands, engaged with asset management of electrical infrastructures. He has a M.Sc. degree in electrical engineering and a Ph.D. degree in technical sciences. His activities included research, education and consultancy in the field of high-voltage engineering and EMC.

Konstantin Petrov is an energy economist and electrical engineer with major expertise in the area of market design, regulatory economics and pricing. Petrov joined KEMA Consulting eight years ago. He’s worked in more than 25 countries in Europe, Australia, Asia, South America and North Africa.

Peter Vaessen joined KEMA in 1985. Throughout his working career there are five leading themes: new technology and its grid integration, strategic development & concepts, innovation & creativity, large power transformers and knowledge transfer.


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