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The Economics of Demand-side Flexibility in Distribution Grids

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Listed:
  • Athir Nouicer
  • Leonardo Meeus
  • Erik Delarue

Abstract

To avoid unnecessary distribution network investments, distribution tariffs are expected to become more cost-reflective, and DSOs are expected to procure flexibility. This will provide an implicit and an explicit incentive to provide demand-side flexibility. In this paper, we develop a long-term bi-level equilibrium model. In the upper level, the DSO optimizes social welfare by deciding the level of investment in the distribution network and/or curtailing consumers. The regulated DSO also sets a network tariff to recover the network and flexibility costs. In the lower level, the consumers, active and passive, maximize their own welfare. We find that implicit and explicit incentives for demand-side flexibility are complementary regulatory tools, but there are limits. If network tariffs are too imperfect, the resulting consumption profiles can become too expensive to fix with curtailment. We also find that it is difficult to set an appropriate level of compensation because of the reaction by prosumers.

Suggested Citation

  • Athir Nouicer & Leonardo Meeus & Erik Delarue, 2023. "The Economics of Demand-side Flexibility in Distribution Grids," The Energy Journal, , vol. 44(1), pages 215-244, January.
    • Handle: RePEc:sae:enejou:v:44:y:2023:i:1:p:215-244
    DOI: 10.5547/01956574.44.1.anou
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    References listed on IDEAS

    as
    1. Klyapovskiy, Sergey & You, Shi & Michiorri, Andrea & Kariniotakis, George & Bindner, Henrik W., 2019. "Incorporating flexibility options into distribution grid reinforcement planning: A techno-economic framework approach," Applied Energy, Elsevier, vol. 254(C).
    2. Tim Schittekatte and Leonardo Meeus, 2020. "Least-cost Distribution Network Tariff Design in Theory and Practice," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 119-156.
    3. Schittekatte, Tim & Momber, Ilan & Meeus, Leonardo, 2018. "Future-proof tariff design: Recovering sunk grid costs in a world where consumers are pushing back," Energy Economics, Elsevier, vol. 70(C), pages 484-498.
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