Regulation and new business models: the issues debated by electricity distributors in Latin America

By Nanda Singh for “Strategic Energy”.

Adelat focuses on decarbonization, digitization, democratization and modern distribution so that distributors “stop being mere infrastructure operators or regulated electricity marketers and become the platform for the energy transition process and the facilitator of new businesses that will emerge.

The Association of Latin American Electricity Distributors (Adelat) held its first work meeting last  August 23rd, aimed at identifying best practices, principles and electricity regulatory guidelines that serve as a model for governments, regulators and investors in our region.

The initiative called Technical Roundtable: “Regulation of the Future Distribution of Electric Power in Latin America”, was attended by members of Adelat and invited stakeholders.

To provide more details about what has been worked on, Aniella Descalzi, Director of Innovation and Strategy at Adelat, with the special participation of Tiago de Barros Correa (Brazil) and Rodrigo Moreno (Chile), provided the following exclusive comments to “Strategic Energy”:

What main issues do you address in your Technical-Regulatory Table?

The main theme is linked to what the electricity sector is experiencing with the arrival of new technologies and disruptive business models.

It is a deep transformation that is carried out, mainly, through the use of electrical distribution systems as a platform.

In this sense, the regulation of the future is key because it must always seek the economic efficiency of the different agents: consumers, electricity producers, service providers and infrastructure operators.

Which elements do you take into account to analyze the role of the Distributor of the Future in Latin America?

The Distributor of the future must be able to provide reliable, safe and high-quality infrastructure at fair prices to enable the energy transition towards more modern and sustainable systems.

This means achieving an adequate infrastructure, capable of dealing with bidirectional flows of electricity, of registering consumption at intervals of at least one hour, allowing remote metering and remote control of equipment as well as managing distributed energy resources.

Transaction and innovation costs are other key variables. It is necessary to minimize them to facilitate the appearance of new business models, such as the direct purchase and sale of electricity.

What regulatory standards for electricity distribution in the Region do you aspire to work in this new space?

The electricity market is undergoing a transition process so fast that it is difficult to talk about regulatory standards.

What we do know is that the principles of the new regulation must favor the experimentation of new technologies and business models, especially those related to renewable and distributed electricity generation, with the electrification of industry and transport and with the liberalization of electricity markets, including so that the smallest consumers, individually or through aggregators, can carry out transactions for the purchase and sale of electricity, complementary services, demand response, conservation and energy efficiency.

What challenges linked to the “energy transition” have you addressed in your first meeting?

To understand the challenges, it must first be understood that the energy transition, in its broadest sense, includes: decarbonization (use of renewable energy generation); digitization (use of smart technologies for the measurement, marketing, billing and control of equipment and energy resources); modern distribution (use of distributed energy sources closer to consumers, including electrification of industries and transport); and democratization (the empowerment of consumers and network users to carry out commercial transactions).

Therefore, it is clear that the energy transition has an important focus in the field of distribution systems and that its success depends on a large extent on the revision of the regulation and the business models of the distributors.

One of the challenges is for them to stop being mere infrastructure operators or regulated electricity marketers and become the platform for the energy transition process and the facilitator of the new businesses that will emerge.

What business models do you contemplate in your analysis of energy scenarios with greater penetration of distributed generation (DG)?

The greater penetration of distributed generation, especially from renewable sources, implies greater complexity, which, if not properly treated, can translate into higher costs.

However, the challenges it poses can be effectively addressed through the joint use of three alternatives:

i) development of a comprehensive demand response market;

ii) use of battery storage systems and other distributed resources; and

iii) expansion of the responsibility of the distributors in the role of the operation of new markets for distributed energy resources.