Coordination of Flexibility Contracting in Wholesale and Local Electricity Markets

Energy users are investing in solar panels, batteries and smart-home energy
systems. New technology is creating both new opportunities and new needs.
New opportunities arise when users are empowered to respond to market
signals. New needs arise when network topology is transforming. Decentralized
renewable energy, electric vehicles, and storage are changing the face of electricity
distribution networks. Taking advantage of new opportunities means opening
the market to all participants. Making the best use of decentralized resources
means identifying decentralized network needs and constraints. This dissertation
is divided into two main parts to study the coordination of demand response
-user participation- procurement. The first part studies the integration of
demand response into the wholesale market design. The second part analyses
local network needs and studies how user participation can be coordinated to
provide local flexibility services.
The integration of demand response into the wholesale electricity market is
studied in Part I of the thesis. Demand response needs to be aggregated to
make a difference at a wholesale market level. The aggregation of demand poses
challenges to market design regarding interactions between actors, procurement
procedures and remuneration mechanisms. What’s more, aggregation has effects
on current market participants. The aggregator trades flexibility provided by
consumers who already have contracts with retailers. These retailers foresee
needs of their customers and trade energy accordingly. When a third party,
the aggregator, is also making decisions on their forecasted load, conflicts arise.
The exact nature of these conflicts is explored in detail. It is found that when
consumers are asked to modify their consumption patterns at one hour, they
are likely to make up for it at a later hour. This is defined as the rebound effect.
Aggregators impact balancing responsible parties (BRPs) on two main levels:
market profits and retail profits. Proposals for transfer payments from the
aggregator to the BRP to solve these conflicts are modelled using an empirical
approach. The BRP is modelled as a portfolio owner of generation and load.
The aggregator supplies demand response flexibility to the market during the

best possible hours as a result of an optimization. It is found that demand
response will be deployed as long as the transfer payment is less than the
peak and off-peak market price. Demand response has an arbitraging effect
in the market therefore can be profitable for the party attributed balancing
responsibility.
Part II of the dissertation is aimed at reaping the possibilities of demand
response at a local level. While the focus of Part I is geared towards wholesale
market benefits, the focus of Part II is in using flexibility to deal with grid issues
and avoid network reinforcements. It is found in current literature and ongoing
projects that there is no consensus on a framework design for the procurement
of local flexibility. The transmission system operator, the distribution system
operator (DSO), an independent aggregator, and a third party actor have all
been proposed as local market operators. A method is proposed to analyze the
need that can be fulfilled by local flexibility in the distribution system. Demand
and price criteria for flexibility services are defined from the point of view of the
DSO. The value of flexibility to the DSO is defined by an analysis of the savings
achieved by avoiding grid reinforcements. Congestion in the distribution grid is
chosen a use-case to test the methodology.
A first case is studied where the DSO procures flexibility directly at cost-value
in order to avoid network reinforcements. It is found that flexibility use can save
up to two thirds of the cost of grid reinforcements for the DSO compared to
the case without flexibility. A second case is studied where a profit maximizing
making aggregator is introduced. In this case, the DSO competes with a BRP
for the flexibility resources that would solve its problems in the grid. A quantity
demanded and a valuation of flexibility for the BRP is proposed. The BRP
needs flexibility to cover deviations in its short term to intraday renewable
energy profiles. The BRP is willing to pay for flexibility as long as it costs less
than the balancing penalties it would otherwise incur. The two actors, DSO
and BRP, have different decision horizons. The DSO needs to make a decision
to buy flexibility or reinforce the network in advance, while the BRP needs
flexibility on an almost real-time horizon. The aggregator needs to make the
decision of who to sell to in advance, so the market is bilaterally organized. It
is shown that as the DSO’s willingness to pay is higher than the BRP’s most
of the time, so it wins the bid for most of the available flexibility with respect
to the BRP. There is still a long way to travel for users to deliberately affect
the functioning of electricity markets and grids. This dissertation opens up a
discussion on a whole scale and a local level in an effort to exploit different
possible uses of flexibility