Still in the stage of development, local flexibility markets for electricity will enable distributed energy resources (short DER, e.g. storage operators, demand response actors, electric vehicles, end users, (renewable) power plants) to provide their flexibility in electricity demand or production/feed-in for the system operator or another counterparty at a local level. As there are different purposes for the use of this flexibility (market oriented, system oriented, grid oriented, see "flexibility triangle"), there exist a variety of different market designs, comprising different actors and role models. Several local market models aim to efficiently tackle the widespread issue of grid congestion and fairness.
Background, problems, and challenges (Northern Germany) The already rapid expansion of Renewable Energies accelerated in recent years. This is particularly the case in Germany, and even more so in its Northern regions. Nearly 50GW of installed wind capacity generated over a third of Germany's electricity demand in 2017. As an example, the Land of Schleswig-Holstein was able to cover 95% of its electricity demand by wind-generated energy (onshore).
Slow grid expansion causes congestion
For transportation to the consumer via the electricity grid, these strong amounts of energy require accordingly developed grid capacities. But while the expansion of wind energy happened very fast, mainly due to the EEG-incentives, the expansion of the grid happened much slower, since the regulation behind grid expansion requires extensive bureaucratic efforts. This fact causes a sophisticated problem: in times of strong wind energy generation, the amount of electricity is too high to get properly feed in and distributed through the grid. The limited grid capacities are simply not constructed to transport such high amounts of energy at once, the result is congestions:
Solving congestions through feed-in management Today, system operators are given only one possible tool to encounter this problem and to secure grid stability: in times of strong wind, certain wind turbines are shut down. This is called Feed-In Management. But stopping wind turbines when their energy output is at its highest, comes at very high cost: both ecologically and economically: Ecologically, because for every curtailed kWh of wind energy, another power plant must be activated to offset the now missing volumes, since they have already been traded in the market. Because the supplementing power plant must be ramped up rather quickly and precisely, the first and only choice are combined cycle gas turbines (CCGTs). This practice of balancing energy generation by activating certain power plants on the one hand, and shutting down certain generation capacities on the other is called system redispatch. Feed-in management comes at very high economic costs for two reasons: first, the redispatched CCGT must be remunerated. Second, the wind turbine operator or owner must also be remunerated (by EEG-law) for every kWh he would otherwise have produced. These costs are not paid directly by the system operator. The system operator is entitled to pass on the costs to the end consumer, meaning that at the end, society pays. Annual costs for feed-in management in Germany were €373m in 2016, €550m in 2017, and are likely to increase up to €5bn until 2025.
Technical description and principles In recent years, a variety of concepts regarding the roles and actors in local markets were developed. This article highlights the following concept, which refers to a flexibility market used by Transmission and Distribution System Operators (TSOs and DSOs) mainly for the purpose of alleviating grid congestions in a market based manner. It was developed within the EU H2020 project Smartnet. It is operated by an independent and neutral third party.
Key roles in this model System Operator: (Transmission and Distribution System Operators) act as single buyer of energy volumes and are therefore counterpart in every trade. The execution of every trade therefore remains subject to the System Operator. The System Operator is also responsible for the financial remuneration of the flexibility providers. Market Operator: a neutral third party that operates the market, including pre-defined profile exchange (meaning the examination of the physical impact of a DER), operation of order books, and potentially clearing activities. Flexible resource owner: offers its flexibility to the system operator. Either downward flexibility (decrease of generation) or upward flexibility (increase of consumption) can be offered. Potential flexibility providers are: storage system owners, electric vehicles, traditional power plant operators (downward flexibility), owners of demand response capacities (e.g. factories), owners of sector coupling facilities. An often used term for resources that can participate in a local market is "DER", referring to Distributed Energy Resource it simply means every resource that consumes or produces energy. Aggregator: aggregates several smaller flexibility providers (that are too small to make viable bids) in one portfolio which participates in the market as one player. E.g. electric vehicles would not participate directly, but via an aggregator in the local market.
Classification of different market design approaches Over the past years, different approaches towards the design of local markets occurred. Their main objective (trade energy locally) is always common, yet there are many different secondary objectives and ways of filling the roles. The following table classifies these different approaches by distinguishing criteria.
Benefits
For the system operator The benefit of a Local Flexibility Market from a system operators point of view is mainly financial. As stated above, the system operator does not come up for the feed-in management costs as he passes them over to the consumers. This situation is secured by actual German law. However, within the next five years, European law is going to change this situation by passing the so-called "Clean Energy for all Europeans" Package, a central bill of law (see "Regulatory Framework)). In the modified, new regulatory framework, system operators will be incentivized to use flexibility and shall avoid measures like feed-in management. Hence, using a Local Flexibility Market to solve congestions will be financially fortunate for a System Operator.
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