ForTheDoers Blog

Sector integration – towards decarbonised and connected energy systems

Monika Kuusela  ·  02 December 2019

Sector integration, aka sector coupling, has become frequently used phrases, but what do they mean, and how can the energy sector address it in real life?

Cars in a city

In the European-level discussion, we often hear that sector coupling refers to the interconnecting electricity and gas markets, while sector integration refers to the broader scope that includes also the heat and transport sectors.

To me, sector integration is a sustainable connection between the different elements of the broad energy markets, i.e. electricity, heating and cooling, as well as gas. This integration should lead to the efficient use of primary energy, and it should be a tool to decarbonise the European energy and transport sectors, as well as industry. In practice, it means that we will utilise as little primary energy as possible and optimise the more intermittent and complex systems in the best possible way. Produced energy will gradually need to become fully decarbonised in order to reach the EU decarbonisation target set for 2050. Sector integration should also be able to tackle the increased volatility of energy production by introducing cross-sectoral flexibility.

It is clear that we have reached the time when we urgently need to preserve natural resources and drastically limit our impact on environment. Thus sustainable ways to satisfy all forms of energy demand becomes the most important matter.

Infrastructure is already there

During the last century, Europe constructed extensive electricity networks delivering electricity to most remote places. We also have extensive gas networks that reach a large share of the European population.  We already have many district heating networks and an increasing number of district cooling networks.

In recent years, decentralised energy production has also increased. This development has made the energy sector even more complex, but at the same time it has provided more renewable sources to the energy mix. Society, industries and policy makers are now looking for ways to utilise existing and future infrastructure in the best way. Interconnecting the sub-sectors in the energy markets has become the solution – but how do we get there?

To make it happen we need to focus on existing energy production and distribution assets as well as gas infrastructure, and we need to determine where the integration can take place. This is going be a collective exercise combining interests and possibilities of societies and industries and it needs to take into account the varying technical, economic and regulatory aspects.

It can be connected

As an example, in large cities where we have district heating networks in place, we could  further enhance the connection of heat and the electricity markets in at least two ways: via utilisation of the large-scale heat pumps and by using the district heating system as a scalable, cost-efficient thermal storage for the intermittent and excess renewable electricity production.

Already now, and even more so in the future, we are able to utilise digitalised building stock to balance the energy flows. Smart solutions for optimisation, demand-response readiness, as well other artificial intelligence solutions will enable it to happen. Another example would be the growing share of electric vehicles in road transportation. Those vehicle batteries can also work as a balancing tool for the electricity grid, if the correct infrastructure is in place.

The shift to more interlinked system will require time to adapt, political will, enhanced societal education and financing for the new investments. DH system operators as well as electricity and gas network operators play a central role in making it happen. In practical terms, this means that sufficient incentives need to be presented to all relevant actors, i.e. regulatory frameworks needs to be developed in a way that supports systemic developments, for example via favourable taxation or grid fees.

The European Commission is moving towards an integrated approach

On the political and regulatory frontier we can already see movement towards an integrated approach, as sector integration emerged with the European Commission’s objective to identify the most cost-efficient path towards decarbonisation.

In accordance with the EU Governance Regulation (part of the Clean Energy for all Europeans legislative package), all Member States will need to submit their final National Energy and Climate Plans to the European Commission by the end of December 2019. The EC has been already encouraging the countries to:

include more forward-looking concepts of energy system integration and sector coupling, including the further integration of the power, gas and heat sectors, as they become central for a decarbonised energy system.

The Commission is also assessing the ways to introduce the regulatory tools and frameworks that would bring the elements of sector integration into place. This requires a focus on systemic solutions, bringing all stakeholders into the discussion, and incentivising the undertakings that would lead to more integration and synergies.

Diversified conditions require extensive dialogue and information sharing

It is not an easy exercise, due to the varying conditions. Heat market-related regulations, in particular, are very local and diversified. Thus it is not easy to provide general rules applicable to all markets, and it will require an extensive dialogue among all interested parties in many dimensions and via multiple forums.

Thus the upcoming initiatives have to be very well-coordinated and strive to recognise the market differences. More ambition in interconnecting the electricity, gas and heating markets will likely lead to more complexity in the regulation, thus it would be advisable to provide thorough consequence analysis prior to implementing any new legislative frames.

On an educational angle, knowledge about the integration possibilities and, widely, decarbonisation possibilities must be shared with societies. Providing efficiency shall be the priority prerequisite when considering the integration.  The competitiveness of European industries should not be undermined; on the contrary, sector integration could boost the options for new business models and create new workplaces. This all can be achieved during an open dialogue between the different parties that are directly or indirectly involved in sector integration considerations.

Monika Kuusela
Senior Manager, Public Affairs
Tel: +358 40 822 7054
monika.kuusela@fortum.com