Experimenting with co-ownership of energy storage facilities - A case study of the Netherlands

This article discusses how shared ownership of energy storage facilities between grid managers (Distribution System Operators and Transmission System Operators) and third-party market participants may help to resolve congestion issues. The article uses the Netherlands as a case study on how congestion issues may lead to a stalemate: increasing energy storage capacity may help to resolve grid congestion but may cause additional congestion if used to trade in profitable markets. As a result, it is not installed, or installation is delayed until the grid is fortified. The article discusses how shared ownership may lead to the co-optimization of investment decisions by different stakeholders and of the operation of the storage facility. It also discusses how the exemption to unbundling obligations under art. 36 (2) of Directive 2019/944 can be used to allow for these ownership constructions. The article argues that national regulatory authorities can use regulatory experimentation to find the desirable conditions and uses of the exemption and to stimulate regulatory learning. The use of experimentation can help to resolve congestion issues in certain localities in the short term and help to develop principles for regulation of the future energy system in the long-term.


Introduction
There is an increasing reliance on the use of variable renewable energy sources for the production of electricity.The shift towards renewables has a significant impact on how energy grids are utilized and how grid managersbeing Transmission System Operators (TSOs) and Distribution Systems Operators (DSOs)have to manage the supply and demand for electricity and energy in general.As energy produced from renewable sources such as wind and solar are characterized by intermittent production cycles, energy grids are faced with peaks in the production of electricity that often do not match with peaks in demand. 1 In energy grids that predominantly rely on fossil fuels, production generally follows demand.With renewable energy, demand will more often have to follow supply in order to ensure a balanced energy grid. 2 In order to balance the energy grid in light of intermittent production, energy grids need to increase their flexible capacity.Flexible capacity, or flexibility of the energy grid, should be understood as the ability of the electrical system to adjust to the variability of generation and consumption patterns and grid availability across relevant market timeframes.In simpler terms, flexibility is the ability of the electricity grid to match the production and consumption of energy over specific periods of time, for instance by diminishing or stimulating demand at certain points in time or by postponing the consumption of produced energy.This may happen throughfor instancepeak-shaving, energy storage, or demand response. 3s a result of a growing demand for electricity and the unpredictability of renewable energy production, congestion issues are increasingly becoming a problem in some countries or localities. 4It is not always possible to fortify the energy grid quickly enough, or cost efficiently, as to account for peaks in production and demand in these areas. 5As a result, grid managers must rely on curtailment to prevent overloading the electricity grid.With curtailment, the production of renewable energy is halted as to alleviate pressure on the electricity grid.While this is a relatively cheap option to prevent overloading the energy grid, it is considered wasteful as there is a suboptimal production and use of renewable energy. 6Energy storage solutions can play several roles in increasing the utilization of renewable energy and provide an alternative option to grid fortification. 7While the findings of the article are generally applicable with technological neutrality, this article focuses specifically on battery storage as a potential solution to congestion issues in the short term, as battery storage technologies are already at the point where they can be operationalized and scaled up and battery storage capacity can be built and expanded rapidly. 8his makes the utilization of electricity storage in batteries attractive to resolve current and pressing congestion issues.While battery storage may help with congestion issues, it has been observed that there is a risk that battery storage facilities worsen congestion issues if they are not loaded and unloaded at optimal times with respect to net congestion.In fact, the most profitable use of battery storage solutions would often result in worse grid congestion, rather than helping to resolve it.Conversely, using batteries solely for the purpose of resolving congestion issues and increasing transport capacity is currently unlikely to be profitable. 9The conflicting interests between the grid managers and market participants can be attributed to a combination of the transition to renewables and its impact on the grid, legal obligations imposed on grid managers to ensure a well-functioning energy grid at a reasonable cost, 10 and the unbundling obligations imposed on grid managers.
Under EU law, grid managers are subjected to unbundling obligations, prohibiting firms that are active in operating transmission-or distribution facilities from operating any other activities related to energy production. 11Following this rule, the production and storage of energy should happen through market mechanisms where independent third parties operate these types of facilities. 12In the Netherlands, this has led to a stalemate as a result of different interests.In light of congestion issues, grid managers are in some instances forced to delay the installation of battery storage capacities if they are likely to worsen grid congestion. 13This risk exists particularly if congestion issues are already present in that area, and worsening congestion issues becomes likely if market players use the battery to trade in (profitable) energy markets such as energy imbalance markets.Without trading in these markets, operating the battery may not be profitable, and market players will not invest in or operate battery storage facilities if they are not profitable.As the profitable battery cannot be installed in light of congestion, while there is no interest from the market in operating an unprofitable battery that relieves grid congestion, the battery is likely not installed. 14This leads to undesirable societal results, such as an inability to open or expand industries as they cannot be connected to the energy grid and a less efficient use of renewable energy overall due to curtailment.CE Delft  (2023), has noted that direction by the NRA or government intervention may be necessary to ensure that batteries are operated in a way that is consistent with the functioning of the energy grid. 15his article discusses how the exemption to unbundling obligations provided in article 36 (2) of Directive 2019/944, which allows grid managers to temporarily vertically integrate into energy storage activities, may help to resolve this stalemate, possibly without the use of government funds or interventions by public authorities.It will be argued that utilizing regulatory experimentation may help to discover desirable uses of the exemption and novel ownership structures.This article explores the possibility for shared ownership between grid managers and third-party firms operating in the market as to mitigate hold up problems and help to create incentives to invest for both grid  OJ L 158 (2019).12. Art.36 (1) Directive 2019/944.13.CE Delft (n.9); Landelijk Actieplan Netcongestie (n. 1).14. Netbeheer Nederland, 'Nieuw inpassingskader voor grote batterijen moet netcongestie verminderen' (2022), online.15.CE Delft (n.9).
van den Boom managers and third-party firms. 16Relying on a policy of regulatory experimentation helps to retain oversight of these constructions, evaluate their desirability, and learn from these exemptions as to formulate lessons for the future of energy regulation.
The article starts with an overview of the congestion issues characterizing the Dutch electricity grid in the first section.Here, Dutch policy documents and expert reports are reviewed with respect to the desirability and problems with electricity storage in relation to grid congestion as to highlight the conditions where these exemptions may be attractive.The subsequent section explores how the unbundling obligation may be utilized to facilitate shared ownership, and how shared ownership may help to provide both grid managers and third-party firms with the security that is needed for them to make investments in electricity storage.The third substantive section explains why regulatory experimentation offers possibilities to frame the use of these exemptions and why the principles of regulatory experimentation align with the conditions set for the use of the exemption in EU law.The final sectionsummarizes the main findings and concludes.
The Netherlands as a case studycongestion issues and the paradoxical role of energy storage This section provides an overview of the congestion issues faced in the Netherlands and how the possibility of increasing energy storage is viewed in its ability to resolve these congestion issues. 17It studies several Dutch policy and expert reports to highlight the ambitions for energy policy in the Netherlands, the need to introduce flexibility into the energy grid to achieve its short-term and longterm goals, and the technical and legal obstacles it faces in creating this flexibility.The purpose of this section is to highlight the tension between the interests of market players, grid managers, and societal interests and the stalemate that is the result of these tensions.Large scale battery storage that can be operated profitably by market parties is likely to worsen to congestion of the grid, and therefore cannot be permitted by the grid manager.The grid manager needs battery storage to efficiently operate the grid, but there is no interest from the market in operating unprofitable battery storage facilities.The grid manager also cannot integrate battery storage due to legal limitations.The Netherlands must find a way to break this stalemate to achieve its objectives for an emissions free energy system and to rapidly resolve its congestion issues as to minimize societal costs.
The objectives of energy policy in the Netherlands and the need for flexibility in the energy grid The Netherlands has set an ambitious agenda for the decarbonization of the Dutch electricity system.Under the European Green Dealand the subsequent Fit-for-55 and REPowerEU packages -Member 16.CEER, CEER Short paper on the ownership of Storage Facilities in the Electrical Distribution System, Report by the Distribution Systems Working Group (2023) also discusses this possibility, in reference to ACER, Framework Guidelines on Demand Response (2022).17.These issues are discussed at length in Rijksoverheid, Landelijk Actieplan Netcongestie (2022); the congestion of the energy grid is also mapped by Netbeheer Nederland (Grid management Netherlands) in Netbeheer Nederland, Capaciteitskaart Invoeding Elektriciteitsnet, online accessed on 14 September 2023, at the time of writing, there is heavy congestion in the provinces of Limburg, Noord-Brabant, Utrecht, Flevoland, Gelderland, Friesland, and parts of Noord-Holland.There is medium heavy congestion in Drenthe, Groningen, and Overijssel.In total, there is grid congestion or a risk of grid congestion in 10 out of 12 provinces.In Noord-Brabant and Limburg, there is no possibility to connect new large users to the grid, See States are to ensure a 55% reduction in CO2 emissions from the 1990-benchmark by 2030. 18In the Dutch Climate Agreement (Klimaatakkoord) the Netherlands has set its own target of 60% reductions by 2030 and a fully decarbonized energy system by 2035. 19The end goals is for the Netherlands to be completely carbon neutral by 2050.This article distinguishes between the short term objectives (2030) and the long term objectives (2050) and focuses in particular on the shortterm objectives. 20hile the ambitions of the Netherlands are in line with obligations imposed by EU legislation, the plans have fallen behind in execution. 21The first obstacle exists in the extreme congestion issues in the Netherlands.In the provinces of Limburg and Noord-Brabant, it is not possible to realize any new connections to the energy grid for large users in the foreseeable future. 22It is likely that these problems will follow for other regions. 23This significantly limits the ability of Dutch enterprises to be founded or expanded, thereby harming the economy.Moreover, congestion issues and negative prices are harming incentives to invest in sources of renewable energy.During peak hours of production there is a structural risk of overloading the energy grid, which leads to low or negative electricity prices throughout large parts of summer. 24With the rapid expansion of wind energy, a likelihood of low or negative prices continues to exist in other periods of the year and times of the day as long as this energy cannot be efficiently transported and used.This leads to reduced investments at both the commercial and individual level.For instance, the construction of a proposed wind park by Vattenfall has been cancelled due to a combination of high construction costs, geopolitical uncertainty and low electricity prices. 25It is also becoming more likely that the net metering arrangement 26 will be retracted for households and that extra tariffs are charged to households with solar panels. 27This may dissuade households from investing in Photovoltaic (PV) installations, but may lead to other efficiencies, for instance investments in energy storage solutions or smarter use of energy by households. 28In short, obstacles to the emergence of flexible capacity (including storage) may delay the energy transition as a whole.
Aside from technical problems, the Netherlands is also facing legal obstacles to establish novel constructions for the production or use of energy such as energy communities, peer-to-peer trading or other types of energy hubs.Volkskrant, 20 July Gualthérie van Weezel, 2023); 26.The metering arrangement ensures that those with solar panels will be compensated for their produced solar energy, even if it is not used for self-consumption or at an attractive price, to the point that their electricity bill would be zero on an annual basis.Any electricity that is overproduced has to be bought back by the supplier for a reasonable compensation; for more information on the metering arrangement and how it is to be phased out, see Rijksoverheid, Plan Kabinet: afbouw salderingsregeling zonnepanelen, online.27.Kamerstukken I 2022/23, 35594, nr. A.  28.See Katrijn de Ronde, Vertraging salderingsregeling heeft 'grote financiële gevolgen', Energeia, online.facilitate these legal constructs. 29In response to these issues, the Netherlands has developed a National Action Program for Net Congestion where it attempts to develop strategies as to resolve congestion issues.This program is based on three pillars: building faster, steering more, and increasing flexibility. 30n the pillar 'building faster', the Dutch government proposes that decentralized governments such as provinces and municipalities should provide more direction to grid managers on how to expand and ease procedures for permitting, that there should be more collaboration between grid managers, and that the available resources should be used more efficiently. 31It has however been observed in expert reports, that there is insufficient personnel to fortify the energy grids in a timely manner.If the strategy would be to solely rely on grid fortification, the congestion issues cannot be resolved in a timely manner. 32he pillar 'steering more' would allow grid managers to connect moreor certainparties even in the presence of congestion issues.Here, there are several concrete initiatives.Firstly, the Dutch National Regulatory Authority, the Autoriteit Consument & Markt (ACM), has allowed for 'societal prioritization'. 33This allows grid managers to prioritize the connection of certain parties over others, rather than relying on the first come first served principle.In principle, the grid managerusing guidelines provided by the ACM -would determine whether a requestee has an important societal function (for instance if it concerns a school or a hospital) or if a party is able to help in resolving congestion issues (for instance through the inclusion of integrated battery storage). 34It is then up to the grid manager to determine which connection has more societal benefit than another, which it then has to justify towards the ACM. 35This can improve the societal benefits of the created connections, but it does not necessarily resolve congestion issues over time.Moreover, it presupposes that any large connections are still possible at all, which is not the case in Noord-Brabant or Limburg. 36There is also an initiative to change the tariff structures so that firms which are not connected for peak-load capacity can be compensated.This means that a firm will receive a smaller connection and that it may have to lower its energy usage upon request.The firm will be compensated for this type of connection. 37These initiatives are helpful in mitigating the crisis and increase energy efficiency, but may not be sufficient to resolve congestion in the long-term without heavily fortifying the energy grid or increasing (non-fossil) flexibility, or using energy storage solutions as a buffer for the energy grid. 38.See Voorstel van Wet, Regels over energiemarkten en energiesystemen (Energiewet), Kamerstukken 36 378/2 (proposed Energy Act). 30.Rijksoverheid, Landelijk Actieprogramma Netcongestie (2022).31.Ibid., p. 11-14.32.Ibid., p. 15-19.33.Autoriteit Consument en Markt.(2023b) The third pillar, increased flexibility, explores possibilities to use energy storage, conversion, or peak-shaving products to increase transport capacity and alleviate congestion issues.Here, it discusses increased oversight and evaluation by public authorities, increased public-private cooperation to create flexibility and identify congestion issues, utilizing smart solutions, and facilitating the creation of energy hubs to alleviate the grid. 39Increasing the flexible capacity of the energy grid will be a necessity in both the short term and the long term.In the short term it is necessary to complement efforts to fortify the energy grid in a timely manner, for the long-term objectives flexibility is necessary to achieve the 2050 objective of a carbon-neutral society.Koolen  et al. have noted that the Dutch ambitions with respect to producing energy from wind at sea would lead the Netherlands to have the highest relative (per capita) share of wind energy for the total demand in 2030, but that as a result of the Dutch wind-at-sea and renewable plans, the Netherlands would also have to realize the highest relative growth in flexibility capacity in the timelines 2021 to 2030 and 2031 to 2050. 40Thus, rapidly expanding flexible capacity is not only important to achieve the short term objectives of resolving congestion issues, but also to secure the long term objective of a carbon neutral society and the Dutch ambitions related to wind parks at sea.The upcoming section discusses how energy storage can be used to introduce this flexibility, and the issues that arise.
Exploring the obstacles in an emerging market for energy storage in the Netherlands Energy storage and the conversion of electricity (from renewable sources) into alternative energy carriers is one of the methods to introduce more flexibility into the energy grid.The Dutch government has published its Roadmap Energy Storage (Routekaart Energieopslag) where it explores options. 41ere, it distinguishes between electricity storage in batteries, conversion to molecules, and storing energy as heat.The Dutch government expresses faith in energy conversion and heat networks as important technologies in creating an emissions neutral society. 42However, these technologies lend themselves poorly to resolving congestion issues in the short term.The market for molecule storagepredominantly in hydrogenwill likely be scaling up towards 2030.However, its impact on the energy system is likely limited as electrification remains the main strategy in the energy transition. 43ossibilities for heat storage depend largely on available local heat sources where it concerns heat sources with low temperatures or developing infrastructure for storages at high temperatures.These are important alternatives to study in light of the 2050 objectives, but the large-scale implementation of battery storage is the most likely candidate to provide energy storage en route to 2030. 44lectricity storage through batteries can happen in different modalities and for different purposes.The Roadmap distinguishes between home batteries (installed behind the meter with small users, mainly for self-consumption of produced energy), collective batteries (installed in front of the meter by groups of (small) users, mainly for self-consumption of produced energy), large scale integrated batteries (installed behind the meter with large users, mainly for self-consumption of produced energy), and stand-alone battery services (provided commercially).Each of these types of battery storage has their own business caseor lack thereofand effects on grid congestion. 45This article 39. Routekaart Energieopslag (n. 2), p. 20-23.40.Koolen (n.3).41.Routekaart Energieopslag (n.2). 42.Ibid.43.Expertteam Energiesysteem, Outlook Energiesysteem 2050 (2023).44.Ibid.45.Ibid, p. 31-35; see also CE Delft, 'Omslagpunt grootschalige batterijopslag -Achtergrondrapport' (2021); CE Delft  (n.9).
van den Boom focuses predominantly on the possibility to operate stand-alone batteries, as the use of battery storage is most discussed as a short-term solution which can be brought to scale and shared ownership is mostly relevant to shared ownership between grid managers and commercial parties active in large scale energy storage. 46However, the findings of the article are technology-neutral, and shared ownership of energy storage solutions can be utilised for any other type of storage facilities.
The Roadmap notes that there is currently around 185 MW of energy storage capacity 47 in operation in the Netherlands.TenneTthe sole TSO in the Netherlandshas noted that it will need around 10 GW of battery storage capacity in 2030 to support the high voltage energy grid.This does not yet provide insights into the required battery storage to resolve local congestion issues. 48It is therefore vital that the expansion of energy storage facilities happens in a short timeframe.There is significant interest from third parties in supplying and operating energy storage solutions in the form of battery storage. 49A report by Stratergy (2023), which is referred to in the Roadmap, estimates that there is around 34 GW in battery storage in the pipeline in terms of requests.28 GW of this capacity would be requested with Tennet, while 6 GW is requested for connection at DSOs. 50These requests are however in different stages, ranging from pre-investigations to actual requests, the Roadmap and the expert report by CE Delft note that only a small number of these requests is likely to be finalized.CE Delft notes that only around .5-2 GW can be profitably operated. 51he tension between what is needed, what is profitable, and what is legally allowed, raises complex questions about the integration of electricity storage into the energy grid. 52There is a need for flexibility and energy storage solutions to increase significantly within a matter of years, but relying purely on market mechanisms is unlikely to be viable.It is uncertain when cost-efficient technologies will be on scalable, and there is no legal framework that allows for the exploration of alternative energy solutions such as peer-to-peer trading yet.The Roadmap Energy Storage sets out several technical and financial obstacles and several legal obstacles.
The Roadmap set out by the Dutch government recognizes the stalemate concerning the installation of additional battery capacity, noting the lack of a business case for market participants and obstacles related to grid congestion, which in turn negatively affect investment incentives. 53The report observes several legal and policy barriers which contribute to the stalemate. 54Firstly, tariff structures may further hinder the business case of operating battery storage.As battery storage is not a recognized activity, tariffs are charged for loading the battery as if it were a user and for unloading the battery as if it were a producer.With these double tariffs, batteries become less likely to operate profitably, but the ACM also does not (yet) want to exempt operators of battery storage from paying these tariffs altogether. 55Secondly, there is little experience with decentral governments in approving battery storage projects.Here, more guidance is necessary from the central government, as well as possibly the ACM and grid managers.Thirdly, relying on subsidies to make batteries profitable raises the societal cost of batteries and may lead to over subsidization. 56For instance, CE Delft (2021) published a study that shows that with targeted stimulus for 5.5 GW of battery storage, it would be possible to install an additional 7.5 GW of solar energy in solar parks.This would prevent curtailment and without leading to congestion issues.However, the costs of batteries for this purpose would cost €2.500per ton of CO2 emissions prevented per year, while the law dictates the maximum costs would be €300 per ton of CO2 emissions prevented per year. 57he Roadmap concludes on stand-alone battery storage by arguing thatbased on the report by CE Delft (2023)these batteries could add to congestion, act congestion neutral, or resolve congestion.Under the current market conditions, it would be highly likely that they add to congestion if operators of battery storage are to operate profitably.The government and ACM could steer use and use subsidies to ensure that they operate congestion neutral, which would increase transport capacity but not resolve congestion.Moreover, subsidies would add to the societal costs of increasing energy storage. 58The report concludes by noting that it is unlikely that stand-alone battery services can resolve congestion issues. 59Here, shared ownership between grid managers and third-party market players may however provide outcomes.This is explored in section 3.

Conclusions
The Netherlands faces significant congestion issues which delay efforts in creating the energy transition.Increasing the capacity for energy storage may help to mitigate congestion issues in the short term and help to achieve the long-term objectives set out in EU and national policies.However, the emergence of a market for energy storage is hindered because of a misalignment between the interests of grid managers and third-party operators of energy storage services.The Dutch Ministry of Economic Affairs has investigated how it could break the stalemate but finds that the use of batteries is either not economically viable, raises societal costs to an unacceptable level, or leads to additional congestion of the grid.The upcoming section explores how the under investigated possibility for shared ownership of energy storage services between grid managers and third-party market players may help to break this stalemate.

Ways to utilize the exemption to unbundling obligations-can shared ownership provide outcomes?
This section discusses the possibility for exemptions to the unbundling obligations under EU law, the desirability of shared ownership constructions, explores when and how shared ownership may be beneficial, and briefly discusses how granting more freedom to grid managers as a neutral market facilitator fits within the regulatory trend that is ongoing in the EU.With increased decentralisation and unpredictability in the energy system, grid managers will need to act as coordinator more often.It must also gain the ability to do so within the framework of regulatory obligations that governs their behaviour.The main findings of this section are that shared ownership is possible under the exemption provided in Directive 2019/944 and that utilizing such constructions may help to co-optimize investment decisions 56.Ibid., p. 43-44.57.See CE Delft (n.39).58.CE Delft (n.9), Routekaart Energieopslag (n. 2).59.Routekaart Energieopslag (n. 2), p. 85.  and resolve coordination problems.It may therefore be beneficial to promote shared ownership constructions in jurisdictions which face similar problems as observed in the Dutch energy sector.
The changing role of grid managers in the energy transition: from facilitator to coordinator Grid managers have been bound to several obligations and principles under EU (and subsequent national) laws.Grid managers operate a regulated monopoly on distribution activities within their area of operations.This involves rules on tariff setting, unbundling, and non-discrimination in the connection of users.These rules facilitate the emergence of competition and the operation of the market in other activities related to energy such as the production, storage, or retail-selling of energy. 60The non-discrimination obligation also limits the possibility for grid managers to place their own interests over societal interests in their decision-making, and ensures that they generally do not have to make political choices. 61The main objective of this regulatory system is to introduce market mechanisms in the energy sector which are intended to result in efficiencies such as cost efficiencies or robustness of the energy sector.However, one may wonder if with the energy transition, the role of grid managers is also changing.The energy transition is more than a transition to a new technology, but rather a complex socio-technical transition that impacts the role and functioning of public and private bodies as well as consumers in the production and use of energy. 62rid managers areespecially in crisis situations such as in the Netherlandsrequired to coordinate the production of energy on one side and the use of energy on the other.This may require a reconceptualization of the regulatory framework that governs them.
This shift towards the grid manager as coordinator is already happening gradually in the Netherlands and at the EU level.One example from the Netherlands is the ACM's announcement that grid managers are allowed to engage in societal prioritization.Following article 6 (1) of Directive 2019/944, grid managers must facilitate access to all third parties that require access to the grid without discrimination.Article 6 (2) of Directive 2019/944 provides an exemption that allows grid managers to refuse new requests for connections if they lack the necessary capacity.Such a refusal must however be substantiated on the basis of technical or economically justifiable criteria, and the grid manager mustwhere possibleprovide information to the requestee about when the connection could be realized.In the Netherlands, where congestion issues are prevalent, the ACM has provided a policy for a structural exemption in the form of 'societal prioritization', where grid managers are encouraged to actively use the exemption to prioritize some connections over others.This is a significant shift from the 'first come, first served' principle which would normally govern such rejections, allowing grid managers to not only refuse a connection but also create a waiting list based on the societal impact of new connections. 63here are also several provisions at the EU level that grant more discretion to grid managers to vertically integrate or to influence national energy policies.944 contains the unbundling obligations for grid managers.While grid managers are in principle not allowed to vertically integrate into storage facilities, they are provided with the possibility to open tendering procedures for energy storage facilities.Thus, grid managers are not only responsible to connect new third-party operators, but may also act pro-actively to request storage facilities in certain locations and for specific capacities.Important for this article, and discussed in-depth hereunder, is the exemption to vertical integration.If the tender fails to attract interested market parties, the grid manager may integrate the storage facility and operate it for a certain period of time before re-evaluation.The ability to open tendering procedures under the supervision of national regulatory authorities highlights the coordinating role of grid managers and divergence from the idea of the grid manager as a neutral market facilitator.
Under proposed changes to Directive 2019/944 and Regulation 2019/943, grid managers will gain further abilities to influence and shape the emergence of energy storage facilities.The proposal introduces article 19c of Regulation 2019/943, which requires Member States to develop a national energy strategy and to assess the need for flexibility capacity on a yearly basis.This assessment happens on the basis of data and analyses provided by grid managers.The European Network of Transmission System Operators for Electricity (ENTSO-E) and the European Distribution Systems Operators Entity (EU DSO) are to (a) define the type of data and format that transmission and distribution system operators shall provide to the regulatory authorities; and (b) develop a methodology for the analysis by transmission and distribution system operators of the flexibility needs, taking into account at least all existing sources of flexibility and planned investments at interconnection, transmission and distribution level as well as the need to decarbonise the electricity system.Thus, determining the types of data and methodology happens by the representative organizations of grid managers rather than the European Union Agency for the Cooperation of Energy Regulators (ACER) or National Regulatory Authorities (NRAs). 64At the national level, grid managers themselves conduct the analyses based on this data.This provides them with significant capabilities to directly and indirectly influence the policy regarding energy storage.
This trend in legislative recognition of the grid managers as having a function of coordinator should be recognized in both EU and national law.Firstly, it may be the case that this shift is necessary to guide an ever decentralizing and complex energy system.The production and distribution of energy no longer happens in a centralised manner, where a small group of energy producers sells their energy and consumers use it.Instead, new types of producers and active consumers are gaining an important role in producing energy and may require coordination through the grid managers. 65Secondly, recognizing this trend allows the regulator to better steer this shift in how grid managers operate.By viewing grid managers as neutral facilitatorsrather than coordinatorsa mismatch may come to exist between the perception of what grid managers are supposed and allowed to do and what is expected of them in practice.Thirdly, and relevant for this article, viewing the grid managers as transitioning from a passive to an active role in governing the energy system may help to frame experimentation policies that explore what roles are desirable for grid managers in future legislation and study the benefits and drawbacks of certain legislative 64.ACER will still provide guidance and shape energy policy through its guidelines and workshops, see for instance ACER, Framework Guidelines on Demand Response (2022), NRAs can still exercise influence by reviewing and approving tender proposals etcetera.There will however be more room for DSOs and TSOs to influence policymaking with the proposed changes, see CEER (n.13), p. 12 -15.65.This process of decentralisation and relying on active consumers as a part of the energy system is at the core of the European energy strategy, see for instance European Commission, Clean energy for all Europeans (2019), p. 13; see also the SET-Plan ACTION n°3.2 Implementation Plan (2018), which foresees the use of local positive energy districts and views the electricity grid as a way to regulate the over-and underproduction in certain areas at certain times.
van den Boom changes.Recognizing the idea that a shift in the functions fulfilled by grid managers is changing with the energy transition may require the development of new principles that underlie the regulatory framework that governs them.The next section discusses how allowing more space for grid managers to divert from unbundling obligations may help to resolve congestion issues, under which conditions it is attractive, which problems it may resolve, and how possible risks can be identified.
Utilizing the unbundling exemptionvertical integration and shared ownership of storage facilities Allowing grid managers to vertically integrate storage capacity (temporarily) may help to resolve issues related to grid congestion.Directive 2019/944 has introduced an exemption in its unbundling obligations to allow for such constructions legally.The exemption laid down in article 36 (2) of Directive 2019/944 allows grid managers to vertically integrate and operate storage facilities if certain conditions are met.The exemption can be used if several conditions are fulfilled.First, the grid manager must publish a tender and must follow an open, transparent, and non-discriminatory tendering procedure that is subjected to review and approval of the regulatory authority.Second, a third party has not been awarded the right to own, develop, manage, or operate such facilities, or could not deliver those services at a reasonable cost and in a timely manner following the conditions set out in the tender.Third, the facilities are necessary for the distribution system operators to fulfil their obligations under this Directive for the efficient, reliable, and secure operation of the distribution system and the facilities are not used to buy or sell electricity in the electricity markets.Fourth, the regulatory authority has assessed the necessity of such a derogation and has carried out an assessment of the tendering procedure, including the conditions of the tendering procedure, and has granted its approval.Fifth, the NRA must periodically (at least once every five years) conduct a public consultation to assess whether the market is interested in taking over these activities from the grid manager. 66n practice, the assessment by the NRA in approving or rejecting the DSO's request to use the exemption consists of several steps. 67First, a tender must be designed and offered to the market.Here, the DSO can request the required storage service and capacity and potentially set criteria on what is considers to be a reasonable (maximum) price for this service.Thus, the DSO has the first responsibility for setting the conditions of rewarding the tender.Second, the NRA conducts an ex-ante review of the tender as to determine whether it is reasonable.For this, the NRA may develop guidelines so that the DSO knows what to expect.This review process ensures that the tender is fair and non-discriminatory.Third, the outcome of the tendering procedure is determined.This may result in three outcomes: a) the storage facility if fully operated by a third-party market participant; b) the exemption is used so that the DSO can operate the storage facility; or c) there is shared ownership between the DSO and the third-party market participant. 68While full third-party ownership is the main rule, the exemption can be applied if there are no bids or if there are no bids that match the conditions set by the DSO.If there are no satisfactory bids, the DSO can apply with the NRA to make use of the exemption and the NRA will then conduct an ex-post assessment.If it is decided that the tender has been offered properly by the DSO, they can be granted the exemption.Finally, the NRA will conduct the periodical public consultation to see if the DSO can retain ownership rights. 6966. Art.36 (2) Directive 2019/944.67.CEER (n.9), p. 12 -15.68.Ibid., p. 12 -15.69.Ibid., p. 12 -15.Shared ownership between DSOs and third parties has been discussed in the (non-binding) ACER Framework Guidelines on Demand Response. 70This option may be more attractive than full DSO ownership and may be possible if no third-party wants to carry the full responsibility for operating the storage service.When there is shared ownership, the grid manager is subjected to the same rules as it were to be for full DSO ownership while the third-party operator can operate their part of the storage freely. 71By sharing the risk, the market participant does not have to take the full financial risk of operating the storage facility while the DSO can realize the desired storage facility while being aided by the market.Moreover, as this exemption is apparently considered a 'second best' solution by ACER, it may be easier to justify these types of constructions than it is to justify full DSO ownership. 72In section 3.3 it is discussed in-depth why relying on such a construction may also be desirable from the perspective of grid managers, market players and society as a whole.First however, it is discussed hereunder how Member States can set conditions for the use of this exemption and how it would apply in the Netherlands following the proposed Energy Act.
The Council of European Energy Regulators (CEER) discusses the margin of discretion held by Member States in implementing a strict or lenient policy towards exemptions.Here, it looks at Croatia, Germany, and the United Kingdom.This comparison shows that there is significant divergence in the policies and considerations by NRAs in granting the exemption.In Croatia, the DSO must first perform an analysis to specify the need for reliability and security of supply.The DSO then submits the proposal for the tendering procedure to the NRA with the description of the product, technical requirements and the valuation of services etcetera.The NRA conducts the ex-ante review and opens the tender.If there are no bids, the DSO must submit a cost benefit analysis where it shows that integrating electricity storage is more cost effective than grid reinforcements.The NRA may then approve the request. 73n Germany, the NRA shall grant approval if the DSO has demonstrated that the energy storage facility is necessary to meet its legal obligations as a DSO in an efficient manner.The storage facility may only be used for the intended purpose and not to buy or sell power, even if it is operated by the third party.The DSO will open a tender procedure under supervision of the NRA, and if they are unable to award the bid to a third party or if the third party turns out to not be able to fulfil the service it can be integrated.Furthermore, it is stated that the DSO cannot award the contract to a third party if they offer this service is not available at a reasonable cost, where the costs are deemed reasonable if they do not exceed the costs for the construction, management and operation of a comparable energy storage system owned by a network operator. 74This is significantly less strict than the Croatian implementation: instead of having to determine whether electricity storage is more attractive than grid reinforcement, the DSO simply has to prove that it is more cost efficient to integrate the electricity storage than it is to procure it from a third party.
The United Kingdom already formulated its exemption policy while still (technically) bound by EU law.Here, they have chosen to introduce a condition in the electricity distribution license that DSOs cannot own and operate generation stations, including storage.However, a licensee may own or operate generation assets through three exemption grounds: category A, Island-based networks, category B, generation for specific authorised activities, or category C: generation pursuant to a direction by the Authority'.Category A is very situation specific and category B is similar to the FINC exemption.The exemption discussed previously mostly fits in category C. To use a category C exemption, the DSO must have taken reasonable steps to obtain a market-based solution; it must be justified that a licensee-70.ACER, Framework Guidelines on Demand Response (2022), par.39. 71.CEER (n.9), p. 16. 72.ACER (n.63), p. 39. 73.CEER (n.9), p. 9-10.74.Ibid., p. 10.
van den Boom operated asset provides the most economic and efficient solution; and arrangements are put in place that minimise the risk of discrimination or distortion of current and future markets. 75This again leaves a lot of space to rely on the exemption.The United Kingdom has also ensured that it can take appropriate measures to prevent discrimination or distortion of future markets, allowing the NRA to impose remedies so that there is a balance between the objectives set for electricity storage on the one hand and free competition on the other.Ofgem provides virtually no guidance on what those measures could or should be in their Guidance document. 76Tying the use of the exemption to a license does however introduce the possibility for regulators to increase their oversight by allowing them to develop terms for issuing licenses and retractions of the license in cases of non-compliance.
The question that then remains is how the policy regarding exemptions can be formulated in the Netherlands, which is the case study for this article and the Energy Act has not yet been adopted. 77he prohibition for DSOs and TSOs to integrate electricity storage facilities is laid down in art.3.31 of the Energy Act. Art.3.32 offers the FINC exemption and art.3.33 Energy Act codifies the exemption by approval of the NRA.According to art.3.33 Energy Act, the DSO can be exempted if: a) integration is necessary to meet its legal obligations under art.3.25 Energy Act; b) The DSO or TSO does not use the storage facility to trade energy; c) the grid manager has demonstrated that market participants are not able to realiseor realise cost efficientlythe facility in a timely manner.
The Energy Act grants the ACM the powers to develop guidelines for a proper tendering procedure, to set conditions for the use of the exemption, but it has to notify the European Commission and ACER when it grants exemptions.It also has to organize the mandatory public consultation at least once every five years.The ACM can also remove the exemption if it finds that market participants have become able to cost effectively develop, exploit or manage the electricity storage facility.Thus far, the ACM has not developed a strategy specifically for the exemptions related to electricity storage under art.3.32 (2) Energy Act.
The wording of the text in the Energy Act does however seem to be formulated in a relatively permissive manner.Firstly, the condition that the storage facility is necessary to meet their legal obligations under art.3.25 may be interpreted broadly.Art.3.25 (1) states that a TSO or DSO must have a system that is able toin the short and long termmeets the demand for transport of electricity (and gas) and maintains a system that is safe, reliable and efficient and that takes into account the environment, digitalisation, energy efficiency and the transition to a carbon-free society.This allows the grid manager to base their argumentation on more grounds than for instance reliability of security of supply, as is the case in Croatia. 78nstead, it can take into account a host of considerations from the availability to meet demand to sustainability.The grid manager must also demonstrate that market participants cannot realise the facility, realise it for reasonable costs, or within a timely manner.It can be ambiguous what realising the facility means in this context, but it can be assumed that this includes situations where the market participant cannot operate the facility cost efficiently or where it does not serve the intended purpose behind the tender.
The combination of factors in the Dutch energy sector could grant significant room for DSOs to utilize the exemption.First, there is an obligation for DSOs to meet the short-term and long-term demand as long as it is reasonable under art.3.25 of the proposed Energy Act.Currently, the energy grid in the Netherlands is sufficiently congested that several DSOs are not able to meet short-term demand, while other regions are at risk.Moreover, long term supply is endangered because of a shortage of professionals that can fortify the grid and because many storage facilities cannot be built as they may 75.Ibid., p. 10. 76.Ofgem, Prohibition on Generating Guidance (POGG) (2021).77.Rijksoverheid, Wetsvoorstel Energiewet (UHT), online; Raad van State, Advies van de Raad van State over de Energiewet, Kamerstukken II 2022/23, 36378 (2022).78.See CEER (n.9).contribute to congestion issues. 79This relates to the second factor, if it is not desirable that energy facilities are used to trade in profitable markets as this may increase congestion issues, they may not be able to operate cost effectively. 80Consequently, the DSO can open tender procedures for electricity storage facilities that do not trade on these markets regularly, which will be more likely to attract few or no bids if the operation is not profitable (or if the time for returns to investment is too long).Thirdly, and considering these first two factors, it is likely possible to argue that the integration is necessary from the perspective of other goals laid down in art.3.25 of the Energy Act such as affordability and sustainability.
This analysis shows that utilizing the exemption for the temporary integration of storage facilities is likely a legal possibility.However, this does still not necessarily mean that it is attractive from the perspective of cost efficiency or definitively serves societal interests.The upcoming section discusses why shared ownership between grid managers and third parties may be one method to stimulate (private) investments, provide security for grid managers in (co-)financing the initial investment and how it may limit the reliance on public funds and subsidies.

Identifying desirable conditionswhat are the benefits and drawbacks of exemption and shared ownership?
Unbundling obligations are the result of restructuring policies aimed at the liberalisation of the energy sector.Prior to these restructuring policies introduced in the 1980s and 90s, different stages of the production of electricity -generation, transmission, distribution and supplywere undertaken by one vertically integrated entity. 81The idea behind these restructuring policies was that introducing competition would lead to a more efficient energy sector, as market mechanisms would be better suited to drive down costs than economic regulation.Distribution-and transmission activities, which required the operation of large and expensive infrastructures, was considered a natural monopoly.As such, it was considered that introducing competition in the markets for these activities would like lead to cost-inefficient outcomes. 8279.CE Delft (n.63).80. Ibid., Zwang (2023).81.Christopher Decker, Modern Economic Regulation (2015), p. 235.82.Distribution activities are still considered a natural monopoly in EU regulatory frameworks, which would indicate that competition is unfeasible or cost-inefficient.Consequently, the choice is made to allow DSOs and TSOs to operate regulated monopolies, rather than attempting to introduce competition in the market for infrastructure.However, much like the applicability of natural monopoly concept was debated at the time of liberalization, the economic realities of the energy sector may again be changing.It is possible that in light of technological changes, certain activities lose their natural monopoly status.Greer (2022), "Electricity Cost Modeling Calculationschapter 2 -The Sustainability of a (natural) Monopoly", Elsevier provides an in-depth study into natural monopolies in the energy sector.Here, Greer observes the following "[a]s far back as the mid-1990s, it was determined that the Generation aspect of electricity was not, in fact, a Natural Monopoly, and could be separated from the "natural monopolistic" aspects, i.e., Transmission and Distribution,… However, with the advent of renewable energy and Distributed Generation, the "Natural-Monopoly" status of the entire paradigm has come into question, with California leading the charge as Residential customers seek to entirely separate from the grid… [g]iven what has transpired in recent years in terms of renewable energy sources (solar, wind, etc.), Distributed Generation, and Microgrids, this Natural Monopoly status, and certainly the regulation thereof, are issues that are worth revisiting and contemplating further".(2007), p. 170; Decker (2015); Ducci (2021) on how technological advancements and refinements of the natural monopoly theory may cause a rethink on whether introducing competition in regulated markets is desirable.This debate on what constitutes a natural monopoly and whether the economic characteristics of a market would invite competition or regulation is common in economics literature on natural monopolies, see for instance the critcisms of Winston, C. (1993)."Economic deregulation: days of reckoning for microeconomists".Journal of Economic Literature 31 ( 3), 1263-1289 on the liberal use of the natural monopoly justification to use price regulation before the 90s.
As such, obligations were introduced to separate transmission-and distribution activities from all other activities such as the generation, supply, and now storage of energy. 83Unbundling remains a central rule in the energy sector, and there are no exceptions for the production or supply of energy.With the exemption for the operation of storage facilities, the regulatory is allowing limited vertical integration.That the rule remains is related to concerns that if there is a threat of having to compete with a vertically integrated entity that controls the infrastructure, third parties become disincentivised to enter the market due to the threat of exclusion by this entity.This is supported by empirical observations from the 1990s and early 2000s, where it was shown that there was limited entry following the choice for account unbundling, and entry became more prevalent once the operation of distribution and transmissions infrastructures become subjected to legal or ownership unbundling. 84hile unbundling became the main rule in the liberalisation of EU energy markets, there was significant debate on the desirability of unbundling at the time of implementation.Proponents of vertical integration argued that vertical integration had various coordination benefits, and that unbundling could lead to increased transaction and information costs.It was also argued that the separation of generation and transmission could lead to a structure based on bilateral monopoly and cause 'hold up' problems that would act as disincentives for investments in generation and transmission. 85The innovation of introducing non-discrimination obligations on an unbundled and thereby independent 'systems operator' helps to resolve short-term coordination problems related to bilateral monopolies.However, as noted by Decker, the longer-term issue of efficient coordination of generation and transmission decisions remains a cause for concern.Especially in situations where there is the need for substantial investments in new generation (including storage) capacities and in light of shifts in the profile and location of generation facilities particularly a need for transmission to connect to often remotely located renewable generation facilities. 86Under these circumstances, Decker notes that there has been debate in some restructured markets as to whether there is a need for some form of centralised transmission planner, who can co-optimise decisions relating to generation and transmission, including taking a 'strategic' approach to the development of the transmission network. 87Decker refers to the obligation in the Third Energy Package where transmissions operators must develop a ten year investment plan.From a broader perspective however, it alludes to the idea that under these circumstances, grid managers may have to fulfil a role of coordinator rather than merely an independent system operator. 88Moreover, it highlights the risk of disincentives for new investments if these coordination problems are not resolved.
The stalemate described in previous sections is largely the result of coordination problems and in turn a lack of (perceived) possibilities to co-optimise decisions.This article argues that shared ownership may help to resolve these issues while striking a balance between the interest of grid managers and third-party market players, as well as the objectives of competition and a secure and reliable energy system.This section will theorize on why the benefits of shared ownership are likely to outweigh maintaining strict unbundling rules and under which conditions.The final section of this paper discusses how these theories can be tested in practice through experimentation.
First, this article argues that the costs of certain solutions must be viewed from the perspective of their broader societal costs.This means that in calculating whether integrating energy storage is attractive from a cost per prevented ton of CO2 emissions, one must not only look at the losses incurred by building and operating energy storage facilities.In situations with heavy grid congestion, there are costs incurred by multiple parties.Grid managers face costs related to curtailment and the mandatory purchasing of renewable energy.To exemplify, in Germany alone, grid operators have paid up to €761 million in 2020 to remunerate producers of renewable energy for curtailment measures. 89In the Netherlands, there have been 192 hours of negative energy prices by July 2020.In some instances, prices were minus €500 per megawatt hour. 90When looking at the estimated costs of €2.500 per prevented ton of CO2 emissions as estimated by CE Delft (2023) for the installation of energy storage at solar parks, the costs of not developing energy storage facilities must be taken into account when looking at the issues from a societal perspective.If energy storage facilities are purely operated by independent firms, these costs should not be taken into account.After all, the gain of the grid manager does not imply any gains for the third-party operator.The third-party operator would fully incur the losses associated with operating the cost-inefficient storage facilities.If energy storage facilities are subsidized through public funds, the costs are deferred to citizens and society.Thus raising societal costs without creating incentives for grid managers or third-party operators to act efficiently.Shared ownership of storage facilities may help to realign incentives and co-optimize decision making.
Shared ownership of a battery system allows for co-investment of private funds into energy storage systems.The shared investment works as a type of insurance for the investing parties, which mitigates the uncertainty associated with investments currently.In a scenario where there is heavy grid congestion, the grid manager may open a tender for the procurement of storage facilities.Using the storage facility to trade in profitable energy markets, such as the energy imbalance markets, could lead to additional grid congestion, but the storage facility is not profitable if one cannot trade in this market.The tender therefore prescribes that the storage facility cannot be used for buying or selling energy and can only be used for managing grid congestion.If there are no interested third parties, the grid manager may choose to integrate the storage facility temporarily.After five years, the national regulatory authority will evaluate whether the integration of the storage facility is still necessary and may find that it is not.This raises an issue of sunk costs for the grid manager: if the return-of-investment of the storage facility is not under five years, it may have to sell the battery to an interested third party following a legal obligation.This harms the position from which the grid manager negotiates the sale, as the buying party is aware that the grid manager is forced to sell.As such, grid managers face uncertainty and the risk of significant losses if they pursue full ownership of the storage facility.The losses incurred by the grid manager raise network costs, ultimately impacting consumers through price raises.
Shared ownership allows for co-optimization.This article puts forward that, for instance, the grid manager can agree with a third party that they share the ownership of the battery based on percentages, and that the grid manager reimburses the third-party operator for their share of the storage facility (and potentially vice versa).With such a construction, the grid manager could own and operate (for example) 90% of the storage facility, while the third-party owns and operates 10%.The third party may use 10% of the capacity of the storage facility to trade in energy markets (perhaps with contractual limitations) whilst the grid manager pays the third party a compensation for the operation of 90% of the storage facility used for congestion issues.If congestion issues are resolved over time, the parties can agree on further sales of the owned percentage from the grid manager to 89.See Next Kraftwerke (n. 6).90.ComCam, Analyse negatieve stroomuren 2023, verwachting en mogelijke oplossingen (2023), online.
the third party for a (predetermined) price.Thus, over the period of five years, ownership may already shift from 90-10% to 50-50%, and ultimately to complete divestment by the grid manager.
The grid manager will gain access to the battery capacity it requires for congestion management with less initial investments than when it purchases the storage capacity by itself, at the same time the third-party operator can start trading with its share of the battery.This type of construction realigns the incentives of both parties and thereby optimises investment decisions: neither of the parties incurs full risks and investment costs, there is certainty for the grid manager with respect to the divestment and sale of the storage facility, and there are securities in place for the co-investing third party.One benefit of such a construction is that the grid manager has incentives to sell its share of the operated battery to the third party.As it pays a periodical fee to the third-party for the share it operates and receives a pre-determined compensation for the share that it sells, it stands to gain by selling shares of its battery relatively quickly.
A simple calculation may exemplify these incentives.In this example, there is a battery worth €1.000.000 and the grid manager and third-party both invest €500.000 for 50% of the share of the battery.They then agree on a reimbursement (from grid operator to third party) and a pre-determined sales price (paid by third party to the grid operator upon sales of their share of the battery).In this scenario, the grid operator pays the third party €500 per 10% share each month, totaling €30.000 per year for its 50% share.For each 10% stake it sells, it receives €100.000.Hereunder three hypothetical scenarios to exemplify different cost distributions: Scenario A -The grid manager operates its 50% of the battery for 10 years without selling any share, paying €300.000 to the third party to compensate it for using its share of the battery.The total costs for the grid manager are €800.000allowing it to manage congestion for ten years.For the third party, the total costs are €200.000(€500.000investment minus €300.000reimbursements).It can trade in profitable markets with 50% of the battery for 10 years.
Scenario B -The grid manager sells 10% of its battery on (the hypothetical) day 0, making its share of the battery 40%.The grid manager pays €240.000 over ten years, while receiving €100.000 for its 10% share, meaning that the total investment for the grid manager €640.000 after 10 years, including its initial €500.000investment.The third party invests €600.000,but gains the €240.000 in reimbursements, making its total costs €360.000 to operate 60% of the battery to trade in profitable markets for 10 years.
Scenario C -The grid manager sells its complete 50% stake after 5 years, paying €150.000 in reimbursements.Its initial investment costs including reimbursements are €650.000,while it receives €500.000from the sales of its shares to the third party.The total costs for the grid manager are €150.000to connect the storage facility and manage congestion over a five-year time span.The third party initially invests €500.000 and pays €500.000 for the rest of the shares.The third party also receives €150.000 in reimbursements, making its total costs €850.000.For this investment, the third party gains the rights to trade in profitable markets with 50% of the battery for 5 years, and with 100% of the battery thereafter.
These scenarios indicate that both parties would benefit from the arrangement.In each scenario, each party receives their desired outcome, while neither has to carry the full €1.000.000investment costs.If the grid manager sells its entire stake on day 0, it would break even, meaning that the third party pays the full price of the battery.If the grid manager never sells, it pays the monthly reimbursement indefinitely, ultimately raising the costs beyond €1.000.000.The NRA can also intervene and force the sale (possibly for a lowered price if the grid manager has acted in bad faith).
In each of the described scenarios, the costs for the grid manager are lower if they sell their stake faster, while the third party gains the possibility to enter into profitable trade sooner.The longer the grid manager uses its share of the battery to manage congestion, the higher the costs for the grid manager (and the longer the third party is delayed in using the full battery to trade in profitable markets).However, there are benefits for the parties from such an arrangement.The grid manager prevents additional costs of curtailment and fortifications of the grid, while increasing its flexible capacity.The third party receives more reimbursements while still using its share of the battery to trade, likely (depending on the conditions of the agreement) making its investment profitable.The parties can freely negotiate the conditions of their agreement under the supervision of the National Regulatory Authority.It is up to the NRA to determine whether the agreement is necessary, and if the conditions it has set for the use of the exemption are met.
The benefits are not limited to the parties involved in the agreement; society benefits from this approach as any losses that may result from the construction are not shifted towards the public.Liabilities, such as the degradation or malfunctioning of the storage facility, can be arranged contractually between the parties.While the practical execution of such arrangements may find difficulties, such constructions can be worth experimenting with as to investigate the effect on investment incentives and congestions issues.The upcoming section discusses how the ACM can govern such shared ownership agreements, and how experimentation can be used to gain experience with these shared ownership constructions and to engage in regulatory learning.
Before moving on to the next section, it should be noted that this article focuses primarily on shared ownership between operators of stand-alone batteries and grid managers.However, similar considerations may apply for 'behind the meter' batteries that are integrated with large users.Here, one could balance between the costs of the firm incurred when they cannot open or expand their facility on the one hand, and the benefit that additional storage facilities may provide the grid manager on the other.To exemplify: co-investments between the grid manager and (a group of) firm(s) for the installation of a battery with more capacity than needed for the requestees may allow the grid manager to utilize parts of the battery for congestion management and secure the creation of surplus storage capacity for the creation and expansion of energy hubs in the industrial area.These types of constructions are not the focus of this article, but their desirability can be investigated further.

Regulatory experimentation as policy -A flexible approach to regulating flexibility
The previous section has set out the possible benefits of utilizing exemptions to the unbundling obligation.However, while the use of exemptions may be beneficial under some circumstances, this does not necessarily mean that the unbundling obligations should be significantly changed or removed.While it is argued in this article that it is important to recognise the role of grid managers as coordinators, they still have a (natural) monopoly on operating the infrastructure and abolishing the unbundling obligations may negatively impact competition and investment incentives by third parties. 91As such, shared ownership constructions or vertical integration by infrastructure operators should only be allowed when this is justified by the economic realities of certain energy storage projects.This may be the case in situations with high levels of congestion of the energy grid, a lack of (cost efficient) possibilities to reinforce the energy grid and coordination problems as described above.
It is up to national regulatory authorities to determine whether the described conditions justify utilizing the exemption, and this may prove difficult in first instance.The exemption to the unbundling obligation is new and allowing full-or shared ownerships by grid managers for a period of at least 5 years may raise concerns with national regulatory authorities and other stakeholders as 91.See n. 82.

van den Boom
NRAs have little to no experience in approving or assessing the use of the exemption.This article therefore proposes that utilizing regulatory experimentation in this area may be a suitable method to discover which types of constructions work, under which conditions they produce beneficial effects, and to provide additional securities and guarantees on a case-by-case basis as to stimulate pilots and private initiatives. 92he CEER paper on Regulatory Sandboxes in Incentive Regulation has discussed how National Regulatory Authorities can use regulatory experiments, sandboxes and exemptions to stimulate innovation in the energy sector.The CEER discusses the regulatory sandboxes in relation to DSOs specifically, stating that "in the current context of energy system transition and integration, regulatory methodologies should reflect the need for adaptive regulation and the DSO's role as an 'enabler' of innovation.Regulatory sandboxes are part of an NRA's toolkit to facilitate innovation without compromising the effectiveness of incentives for efficient operation or the role of the DSO as a neutral market facilitator.This tool enables regulators to move towards a more proactive stance to facilitate innovation in ways that do not necessarily require additional allowed revenues or remuneration, securing the affordability of grid operations." 93While the CEER is careful in its wording on the level of discretion that should be granted to DSOs, shared ownership constructions may strike a balance between their role as a neutral market facilitator and as a regulated monopolist.The DSOs ownership of the storage facility only extends to the point that it is necessary for the efficient operation of the grid.Once congestion issues are resolved, the DSO will gradually divest its stake in the storage facility until it is fully operated by the market.The temporary integration therefore does not serve the purpose of creating additional revenue streams for the DSO, but rather as a way to co-optimize in a cost-efficient manner.
The concept of regulatory sandboxes can be understood broadly.The CEER defines regulatory sandboxes as a "safe space where businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in the activity in question." 94Baumgart & Lavrijssen provide several definitions for regulatory sandboxes, stating that "a regulatory sandbox is a space, a forum, to try out different regulatory strategies.More concrete, regulatory sandboxesor 'laboratories of innovation'are 'schemes that enable firms to test innovations in a controlled real-world environment, under a specific plan developed and monitored by a competent authority". 95Following any definition, setting up regulatory sandboxes would allow the regulator and private stakeholders to experiment with different ownership constructions, reimbursement mechanisms, securities, and contractual obligations.Allowing for derogations provides private stakeholders with the opportunity to negotiate their own conditions and contracts under the supervision of the national regulatory authority, thus striking a balance between public and private interests and capabilities.
Regulatory sandboxesand regulatory experimentation more broadlyhave common characteristics.First, regulatory sandboxes are temporary regimes with a predetermined time limit.This time limit can be extended on the basis of the outcomes of the experiment. 96Second, the regulatory sandbox can be used to derogate from regulation for the purpose of learning and to stimulate innovation.Innovation can either relate to technologies or regulatory innovation.Experimentation with shared ownership would predominantly be focused on regulatory innovations.Regulatory authorities can learn about the impact of granting certain exemptions on different groups of stakeholders as to better utilize certain exemptions or derogations.The conditions for the experiment can be negotiated between the regulator and the involved parties as to develop a good mix of regulatory strategies and to develop principles for (future) regulation. 97Third, regulatory experiments are monitored by the relevant authority following agreed conditions on reporting and transparency.This allows for learning by the regulator and ensures oversight into the preliminary outcomes of experimentation.If the experiment leads to societally undesirable results or fail to produce the expected outcomes, the regulatory authority can retain the right to end the experiment. 98Aside from these common characteristics, experimentation may also involve the use of public funds to promote the adoption of innovative technologies, processes or constructions.This may provide some securities for the involved parties as to stimulate new approaches. 99he use of public funding is one of six dimensions that should be taken into account when using regulatory experimentation as identified by Schittekatte et al. (2021).Here, it is noted that first, the regulatory authority must select eligible project promotors, limiting for instance which parties can apply for the exemption.Second, the NRA must choose which derogations are allowed.Third, the NRA must decide on the proper time limit for these derogations.Fourth, it must be decided how the findings are administrated.Fifth, the choice must be made whether to support the experiment with public funding.Sixth, tools must be developed to promote transparency. 100 2023) identify several possible drawbacks, which include the risk of disrupting competition or harms to consumers, the risk that experimentation fails (or that it fails if it is not supported by public funding), or risks in the validity of experimentation. 101Moreover, the JRC identifies some possible limitations or obstacles to experimentation, which may include the lack of a legal basis, lack of resources and expertise, defining suitable indicators or methodologies to measure the experimentation results, or planning the experiment. 102he exemption granted in Directive 2019/944 and subsequent national legislation is likely a suitable candidate for regulatory experimentation.There is little uncertainty about the legal basis, as it involves experimentation with an exemption that is already provided for, but with which there is little experience for regulators.Moreover, the concept of shared ownership is discussed at the European level by ACER, which creates familiarity with the construction at the EU level. 103he time limit and planning of the experiment are relatively straightforward as the integration allowed under the exemption is reviewed every five years as a rule.The regulatory authority can add periodical (for instance yearly) evaluation moments to learn from these constructions.If it is found that the integration remains necessary after five years, the regulatory authority already has a legal basis to extend the experiment.By framing the use of the exemption as a regulatory experiment NRAs also have the possibility to develop ex ante guidance, conditions for the experiment, tools for administration and transparency, and conditions for termination when granting the exemption.This lowers the risks of disrupting competition and other societally undesirable outcomes.The NRA and stakeholders may agree on a termination clause if the experiment leads to undesirable results, with possible safeguards put in place through public funding or securities.The NRA can also select early candidates on the basis of grid congestion within a certain location.This may ensure, for instance, that ending the experiment with the requirement towards the DSO to fully divest the storage facility and to sell it to the participating by market player has limited effects on the congestion problems within a certain region or area.
Utilizing experimentation allows NRAs to gain an in-depth understanding of the effects of vertical integration of storage facilities and to develop proper transparency and reporting obligations for the involved parties.This, in turn, allows for the development of methodologies and expertise required to grant the exemption in the future, to propose legislative changes, or to instruct future EU policies.This article has put forward that there is an ongoing regulatory trend by which grid managers are increasingly recognized as coordinators rather than conduits.Experimentation on a case-by-case basis with shared ownership may help to identify regulatory principles for the energy system of the future.In the short-term, the developed knowledge may also help decentral governments to gain experience in permitting energy storage projects.The NRA can develop and share expertise on where congestion issues arise, what the impacts are of certain energy storage facilities, how quickly and cost effectively these storage facilities may help to resolve congestion, and how different interests are served or harmed by the installation of storage facilities.This in turn can be translated to general guidance on the desirability of energy storage facilities for the pursuit of different objectives.
Experimentation also provides legal grounds to support initiatives with public funds such as issuing guarantees for parties that are willing to experiment with shared ownership constructions.Public funds may be used to protect involved parties from losses or mitigate potential losses for the sake of regulatory learning.While the use of public funds may be controversial, it does help to realign the incentives of grid managers, third parties and public authorities.With the inclusion of such a scheme the risks of entering into new constructions and the burdens of compliance with regulation and administration are not carried fully by the private parties.This may stimulate interest in entering into pilots or regulatory experiments by third parties if necessary.At the same time, the costs of storage facilities are not fully socialized.As noted in the Roadmap, it would be very costly to use public funds as to install mandatory storage facilities. 104Privatepublic cooperation and co-investment may help to divide the costs and benefits of storage facilities fairly.

Conclusions
The energy transition should be viewed as a complex socio-technical transition that requires rethinking the objectives, technologies, and the roles of players in the energy system.This article has argued that the role of grid managers is slowly changing from neutral facilitator to coordinator and has explored the possibilities for vertical integration of distribution and energy storage activities in this light.The article has argued that shared ownership between grid managers and third-party storage operators may help to mitigate issues related to net congestion and may contribute to achieving the goals set out for 2030 and 2050 in EU and national policies.Utilizing the exemption to unbundling obligations provided under article 36 (2) of Directive 2019/944 may help to break stalemates that result from grid congestion as observed in the Netherlands.The congestion issues faced by the Netherlands are the cause of significant costs for society, grid managers and industries.Energy storage may help to mitigate issues related to grid congestion but may worsen congestion issues if they are used for trading in energy markets such as the energy imbalance market.Without trading in these markets, operating energy storage technologies such as large-scale stand-alone batteries is likely not economically viable for independent operators.As a result, there is a desire for additional storage capacities from the perspective of grid managers and society, there is interest in operating profitable energy storage services for the market, but there a misalignment of incentives leads to a lack of investments.
This article argues that shared ownership for energy storage services between grid managers and third-party operators may help to co-optimise investment decisions and mitigate coordination issues.Shared ownership may function as an insurance for both grid managers and their co-investors that reduce their financial risks.It also allows for co-investments which reduce sunk costs.Most importantly, it allows the grid managers and market-based operators to make contractual agreements on how the storage facility can be operated without causing additional congestion and ensure a return-on-investment for both parties in operating the storage facility.
The article has theorized on the benefits of such arrangements but recognises that there is no experience with such constructions and that regulators have little insight into the impact of utilizing the exemption in this manner.The article has therefore argued that regulatory experimentation may be attractive as to create pilots for shared ownership and to study the effects on grid congestion, competition, consumers and society as a whole.By framing the use of the exemption as an experiment, national regulatory authorities gain increased opportunities for learning and this knowledge can be disseminated to public and private stakeholders as to inspire future uses of the 104.Routekaart Energieopslag (n. 2).
van den Boom exemption and principles for regulation.With this, experimenting with shared ownership does not only serve the purpose of resolving short-term issues in effecting the energy transition, but also serves as a platform to study the potential roles of grid managers as coordinators in the future energy system.
See also Daniel H. Cole & Peter Grossman, The End of a Natural Monopoly Deregulation and Competition in the Electric Power Industry, Routeledge (2014), p. 2; Joskow 92.The benefits of regulatory sandboxes in developing new approaches and creating regulatory innovations are broadly discussed, see for instance: Sofia Ranchordás, 'Innovation-Friendly Regulation: The Sunset of Regulation the Sunrise of Innovation' (2015) 55 Jurimetrics J., 201-244; Sofia Ranchordás, 'Experimental Regulations and Regulatory Sandboxes -Law Without Order?' (2021) LaM; Kanerva Sunila & Ari Ekroos, 'Regulating radical innovations in the EU electricity markets: time for a robust sandbox' (2023) Journal of Energy & Natural Resources Law 2023, 41:1, 5-25.; Tim Schittekatte a,c, Leonardo Meeus a,c, Tooraj Jamasb b, Manuel Llorca b, Regulatory experimentation in energy: Three pioneer countries and lessons for the green transition, Energy Policy 156 (2021) 112382; regulatory sandboxes have also been proposed in other areas of the energy transition such as the development of hydrogen infrastructure and the use of hydrogen, see Saskia Lavrijssen and Blanka Vitéz, 'Make Hydrogen Whilst the Sun Shines: How to Turn the Current Momentum into a Well-Functioning Hydrogen Market?' (2020) CCLR; Gökçe Mete and Leonie Reins, 'Governing New Technologies in the Energy Transition -The Hydrogen Strategy to the Rescue?' (2020) 3 CCLR; Saskia Lavrijssen & With these dimensions, 95.Baumgart & Lavrijssen (forthcoming), in reference to Kerstin Tews, 'Europeanization of Energy and Climate Policy: Tim Schittekatte a,c, Leonardo Meeus a,c, Tooraj Jamasb b, Manuel Llorca b, Regulatory experimentation in energy: Three pioneer countries and lessons for the green transition, Energy Policy 156 (2021) 112382.100.ibid., van den Boom Schittekatte et al. provide some guidance to NRAs in setting up successful experiments.This is important because experimentation also carries risks of drawbacks.Gangale et al. ( R. 'Making energy regulation fit for purpose.State of play of regulatory experimentation in the EU -Insights from running regulatory sandboxes', JRC Report (2023), p. 5-6.99.