NordREG has acted as steering group for two studies on demand flexibility. Both studies were financed by Nordic Energy Research.
The first report was written by Pöyry Management Consulting (Norway) AS and the topic of the study is demand side flexibility from a Nordic distribution system operator (DSO) perspective.
The second report was written by Vista Analyse AS. The purpose of this study was to explore available information on demand flexibility and to make an overview of existing barriers for demand flexibility and its potential value in the Nordic market.
Below follows short summaries of the two studies.
Demand side flexibility from a Nordic distribution system operator perspective
The report consists of a concept study and an interview study. The concept study addresses how DSOs can utilise demand response, including models for how it can be realized and a description of various regulatory issues. The interview study consists of interviews with three DSOs in each of the four Nordic countries addressing: the status of demand response among the selected DSOs; the potential value of flexibility; major barriers to realizing flexibility; and their plans related to demand response.
The report presents numerous household activities which could provide valuable flexibility resources to DSOs, and describes how the DSOs can benefit from increased flexibility among their customers.
Based on a literature study, the report concludes that the most important potential of demand side response for DSOs is related to reduced grid investments. Flexibility can furthermore improve grid optimization, reduce network losses and improve quality of supply.
One of the main possibilities for DSOs to incentivize demand response, raised in the report, is through the design and implementation of cost reflective network tariffs. Tariffs which reflect the costs in the network, either time-differentiated or power-based, are emphasized as crucial for DSOs to enable demand response. The report also raises a need to assess how current regulatory regimes incentivize or hinder DSOs to encourage demand response among their customers.
Flexible demand for electricity and power: Barriers and opportunities
The report presents estimates of the amounts of flexibility in Nordic countries, examples of studies regarding costs and benefits of flexibility, previous studies on end-users’ behavior to price variation and potential sources for flexibility. The literature review shows that the potential is higher in the residential sector than in industry, and solutions in the residential sector may play a role in the balancing markets as well as the retail market. Especially residential space heating plays a significant role.
The report lists the existing barriers as follows: Real-time pricing and metering, aggregation services, ICT and automation services, shorter settlement period and lower minimum bid size.
Real-time pricing and metering is the one feature that the development of flexibility hinges on. The core message from the report is that a market for aggregator services will not thrive unless there is an underlying real-time price structure with metering. ICT and automation services are of limited use unless one has retail real-time pricing or aggregator services that respond to real-time pricing.
The consultant has evaluated that demand flexibility has significant potential in Nordics. Customers can get benefits both in electricity markets and in network services.
The consultants propose to strengthen efficient price signals from the energy market and network costs. In addition, DSO and TSO regulation need to be evaluated and the models of aggregation should be made clear.
NordREG will continue its work evaluating the proposals and fostering demand flexibility. NordREG will for example exploit the reports in 2018 while evaluating the development of network tariff design and network regulatory regimes.