| dc.description.abstract | In 2021, the European Union (EU) had set the ambitious goal of reaching net-zero greenhouse gas emissions in 2050. To achieve this goal, the way we use energy needs to change radically, and the shift towards renewable energy sources (RES) has to be made. The electricity grid will face significant challenges due to the shift towards RES such as solar and wind energy, as electricity production will be increasingly intermittent, volatile, and unpredictable. Therefore, one of the main challenges of the energy transition is to constantly keep the balance between the demand and supply of electricity, as this is essential to have a reliable and safe electricity system. Demand response (DR) can potentially provide a cost-efficient alternative for balancing the electricity grid. In contrast to the traditional way of balancing the grid which adjusts the production of electricity, with DR, the demand of electricity is adjusted to match it with the supply.
Electricity grid operators buy flexible capacity on balancing markets to balance the grid. When DR can offer flexible capacity for a lower marginal cost, it has the ability to bid a lower bid price on these markets. This enables grid operators to reduce costs in buying flexible capacity, which can lower the cost of the electricity system.
This research aims to quantify the cost reduction potential of DR from a system perspective. Historical data of balancing markets in Great Britain and the Netherlands are analyzed using regression, correlation, and average bid price analysis to quantify the effect of the participation of DR on the price of flexible capacity. Next to that, opportunities and barriers have been identified in sharing more detailed data of balancing markets to enable this quantification.
The results show that for most balancing markets included in the scope, a significant price reduction is estimated due to the participation of DR. It is estimated that DR bids on average 35% lower than the market average. Next to that, the regression analysis estimated that a 1% higher participation of DR in balancing markets on average leads to a 2.7% lower price for flexible capacity. Looking at the current average participation of DR in the markets included in the scope, it is estimated that the price in these markets has dropped by 10%-20% due to the participation of DR. By extrapolating this, it is estimated that the price reduction of flexible capacity in balancing markets in 2030 ranges from 43% to 71% compared to a situation without the participation of DR.
The results also show that the main opportunities of sharing more detailed data of balancing markets are lower barriers for new market entrants, increased market efficiency, improved reputation for grid operators, and easier identification of DR potential. The main barriers are the extra burden for grid operators, harm of privacy of business, risk of collusion, the political view on regulation and transparency, and the lobby of the industry. | |
