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The Economics of Demand-side Flexibility in Distribution Grids

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  • Athir Nouicer, Leonardo Meeus, and 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.

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  • Athir Nouicer, Leonardo Meeus, and Erik Delarue, 2023. "The Economics of Demand-side Flexibility in Distribution Grids," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    • Handle: RePEc:aen:journl:ej44-1-nouicer
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    References listed on IDEAS

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    3. Elise Viadere, 2024. "Promoting Energy-sharing Communities: why and how? Lessons from a Belgian Pilot Project," Working Papers ECARES 2024-22, ULB -- Universite Libre de Bruxelles.
    4. Elise Viadere, 2025. "Promoting energy-sharing communities: Why and how? Lessons from a Belgian pilot project," ULB Institutional Repository 2013/389043, ULB -- Universite Libre de Bruxelles.
    5. Aïd, René & Bonesini, Ofelia & Callegaro, Giorgia & Campi, Luciano, 2025. "Continuous-time persuasion by filtering," Journal of Economic Dynamics and Control, Elsevier, vol. 176(C).

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