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Realizing the smart grid's potential: Defining local markets for flexibility

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  • Ramos, Ariana
  • De Jonghe, Cedric
  • Gómez, Virginia
  • Belmans, Ronnie

Abstract

The technical and economic layers of electricity markets are moving in opposite directions: on the technical side, corrective actions are often needed at a particular place in the distribution grid, while on the economic side, wholesale market solutions at the moment do not provide location-specific solutions. Thus far, system operators have had little involvement in market actions to balance the network or relieve congestion. The Distribution System Operator (DSO) is faced with a need for market tools to enable more active system management through the use of flexibility. This paper discusses market-design proposals that would enable access to flexibility contracting to solve network problems and aid in balancing actions at a specific location. Market design is studied in terms of temporal, spatial, contractual, and price-clearing dimensions. Three main approaches to contracting flexibility are analyzed. The first is the possibility to contract flexibility through the existing wholesale markets; the second is the creation of a separate flexibility platform; and the last is a reserve-type market approach. The choice of design depends on possible market power and entry-barrier issues. A semi-competitive reserve-type market approach is suitable for an emerging market and a competitive exchange is recommended for a more mature market.

Suggested Citation

  • Ramos, Ariana & De Jonghe, Cedric & Gómez, Virginia & Belmans, Ronnie, 2016. "Realizing the smart grid's potential: Defining local markets for flexibility," Utilities Policy, Elsevier, vol. 40(C), pages 26-35.
    • Handle: RePEc:eee:juipol:v:40:y:2016:i:c:p:26-35
    DOI: 10.1016/j.jup.2016.03.006
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