Siemens Smart Infrastructure: Local Flexibility Markets

Renewable energy is transforming our landscapes and power systems, with solar panels and wind farms stretching across continents. But as we push toward a cleaner energy future, the infrastructure carrying this energy is under unprecedented strain.

The challenge is clear: integrating these renewable sources into the grid without costly expansions or grid imbalance and congestion.

Leveraging under-utilised capacity through local flexibility markets is emerging as a key piece of the puzzle for addressing this, enabling a smarter, more resilient energy ecosystem. 

Flexibility markets redefine grid management, using local resources to relieve congestion and stabilise the grid. This market-based approach doesn’t just reduce emissions and address the issue of under-utilised capacity; it opens new revenue streams and business models for energy providers and consumers alike.

For forward-thinking companies, flexibility markets are more than just a technical fix; they represent the future of energy management and a powerful response to the urgent need for climate action. 

The strain on traditional grids 

As the footprint and use of renewable energy sources expand, it introduces an imbalance: energy generation often happens far from where it’s needed.

Wind farms and solar arrays are typically located in rural or coastal areas, while the highest energy demand remains concentrated in urban centres.

Attempts to move energy from where it’s produced to where it’s consumed has led to a significant increase of congestion risks in our saturated local grids, with serious economic and environmental consequences. 

Estimates show that by 2040, up to 310 terawatt-hours (TWh) of renewable energy could be curtailed annually in order avoid grid congestion — an amount equivalent to almost half the electricity produced by wind and solar in the EU in 2022.

This shortfall translates to billions of euros in economic losses, as unused renewable energy means lost revenue and wasted opportunity.

Even with planned grid expansions, the growing demand for renewable energy outpaces the infrastructure, creating a pressing need for alternative solutions. 

The role of local flexibility markets 

Flexibility markets address this challenge by creating a localised marketplace for energy flexibility. Essentially, they allow Distribution System Operators (DSOs) to procure flexibility services from nearby energy resources to manage grid congestion.

Unlike traditional approaches that rely on expensive grid expansion, they leverage market mechanisms to adjust supply and demand in real-time. 

This flexibility can come from various resources, including local storage systems, electric vehicle charging stations and even residential consumers willing to adjust their energy usage patterns.

These assets can shed or shift load on localised substations, making space on neighbouring substations and cables to absorb renewable electricity otherwise curtailed. In return, participants are compensated, creating a mutually beneficial arrangement that supports grid stability and energy efficiency while opening up new revenue channels for energy “prosumers” (consumers who also produce energy). 

Flexibility in operation 

Local flexibility can be harnessed in different ways, from time-of-use to dynamic tariffs and fully market-based procurement. And the flexibility market’s landscape is also rapidly maturing.

In the UK, for instance, initiatives like the Flexible Power programme have brought together multiple Distribution Network Operators (DNOs) to create a centralised platform for procuring flexibility services.

Similar models are being piloted across Europe, with France, Sweden, and Italy leading the way through projects like Enedis’ platform in France, the SthlmFlex project in Sweden and the RomeFlex pilot in Italy.

These initiatives show the versatility of flexibility markets and the potential for collaboration across borders. 

Real-world applications and impact 

Take Italy’s RomeFlex pilot as an example. This approach has enabled Areti to predict with high accuracy congestions in the coming hours and to calculate exactly the amount of flexibility needed, reducing by half the investment compared to traditional grid modernisation needed to deal with their volatility issues.

It’s a case of local flexibility in action — using available energy resources to meet demand efficiently. 

Local flexibility markets aren’t just helping manage the grid; they also have the potential to provide a financial incentive for businesses and consumers to become part of the solution.

The economic benefits are as significant as the environmental ones. By alleviating congestion, they minimise the need for costly grid upgrades, translating into savings for utilities and, ultimately, for consumers.

This shift supports a sustainable, decentralised energy system where flexibility becomes as valuable as the energy itself. 

Barriers to scaling  

Despite their advantages, flexibility markets face hurdles.

One major barrier is the need for a widespread rollout of smart meters and advanced data analytics, which are essential for real-time energy tracking. 

Without this infrastructure, DSOs cannot accurately assess and act on local flexibility.

Additionally, better coordination between Transmission System Operators (TSOs) and DSOs is crucial for managing energy flows across regions and avoiding conflicts, while the fragmentation of communication protocols underscores an absolute need for improved interoperability.    

Policy support will also play a vital role in the growth of flexibility markets.

Currently, regulatory frameworks often favour physical grid expansion over flexibility solutions, making it difficult for them to compete on equal footing.

Long-term incentives for flexibility, such as grants or tax breaks for participating businesses, would go a long way in levelling the playing field and encouraging wider adoption.  

Greater harmonisation and data standards would also represent a positive move to combat the fragmented regulatory environment.

Indeed, EU-wide harmonised regulation for flexibility markets and handling of data would be a step change, along with the creation of scaling markets where DSOs can purchase flexibilities. 

A strong business case 

For energy companies, local flexibility markets offer new business models that go beyond traditional energy sales.

As  DSOs and TSOs tap into flexibility services, companies that provide energy storage, smart metering  and demand response technologies stand to benefit.

Additionally, businesses that generate surplus renewable energy or can adjust their energy usage have an opportunity to monetise their flexibility. 

Flexibility markets also appeal to energy consumers looking to reduce their environmental footprint and keep control of their costs.

By participating, companies can lower their energy bills while contributing to the broader goal of decarbonisation.

The flexibility market opens doors for new revenue streams and incentivises a more responsive, decentralised energy system. 

Building the foundation for sustainable energy 

Investing in local flexibility market infrastructure is key to creating a resilient, sustainable energy future.

They are more than just a tool to alleviate grid congestion — they represent a transformative approach to energy management.

By enabling DSOs, TSOs, technology providers, market operators and regulatory bodies to work collaboratively, flexibility markets help shape the policies and technologies needed to make flexible, decentralised grids a reality on a global scale. 

Accelerating decarbonisation isn’t solely about expanding renewable energy capacity; it’s also about ensuring that this energy reaches consumers efficiently.

Local flexibility markets offer a critical solution by converting grid management from a static system into a dynamic, responsive network that adapts to local demands and renewable generation.

In fact, they serve as a game-changer for renewable energy integration and deliver a sustainable solution to grid congestion, support economic growth, and provide a new revenue model for both energy providers and consumers.  

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