Why demand side flexibility will get an increasing value in electricity markets

Due to technology developments and political goals, electricity markets all over the world are undergoing dramatic changes. Integration of non dispatchable renewable electricity generation like solar photo voltaic and wind turbines is one driver. New types of electricity loads like electric vehicles and power to heat is another. Less predictability and fast changes in generation and load are some of the consequences from these changes. Since these changes mainly are taking place in the distribution grid, we find the challenges mostly at the local level, and hence, they must be solved locally.

The traditional approach to meeting such challenges is to build new and increased capacity: Invest in new power lines and transformers at the grid side and new controllable power stations at the generation side. However, such capacity enforcements are capital intensive. Moreover, they have negative environmental impacts and take years to build.

The innovative approach to the challenge is to empower demand side to take a more active role through utilization of what we name demand side flexibility. This concept is about the demand side responding to prices or other signals by changing their exchange of power with the surrounding power system and power market. By doing so, they can help the power system to balance generation and load and to relieve bottlenecks. Hereby, they contribute to decreasing the need for capacity investments.

We can divide the response into three main groups depending on what kind of appliances that are available in the case at hand: Flexible loads, distributed storages and dispacthable generation/conversion units. Flexible loads can be shifted in time (like EV charging) or curtailed (like dimming lights or running fans at lower speeds). Storage appliances may be heat storages (like hot water tanks) or electric batteries. Finally, flexible generation or conversion appliances may be water heaters, heat pumps or fuel cells. We observe that some of the smart grid building blocks are new and innovative technologies, while others are mature technologies that are already installed.

So, if the technology is in place, why do we not utilize demand side flexibility? We can answer with two major issues:

1) Incentives that motivates the demand side to participate are currently not strong enough and
2) Decision support tools must be in place that can utilize the flexibility in an optimal and safe way.

These two areas are where the NCE Smart Energy Markets cluster focus our activity. Through research and innovation, we on one hand develop new methods and tools, and on the other hand develop new business models and new market designs. In total, these developments will unleash the flexibility potential, revolutionize the electricity markets and turn challenges into business opportunities.

By Stig Ø. Ottesen, researcher and phd candidate, NCE Smart Energy Markets.