Business Models for Extracting the Value of Flexibility in Electricity Systems: A Contractual and Market Based Approach
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The Nordic electricity system faces several challenges, and demand side flexibility will be a key factor for securing reliable and efficient electricity supply. The aim of this thesis was to elaborate both contractual and market-based business models for releasing potential of demand side flexibility. Opportunities for several participants on the demand side as well as the supply side were emphasized. The thesis attempted to evaluate various business models both from the perspective of each individual participant and the whole society. In order to analyze factors impacting the business models, costs and benefits of flexibility were quantified. Further, illustrative studies of each business model were performed to highlight the theoretical analyses. An aggregator was introduced to explore how an intermediary party affects the overall value creation of flexibility as well as the allocation of this value. Finally, the thesis proposed future solutions for employing sufficient flexibility to the electricity systems. The analyses indicated that the various business models have important characteristics required to manage different challenges in the trading of flexibility. Bilateral contracts enable trade of this resource at an early stage where few buyers and suppliers participate in addition to provide tailored solutions to solve specific problems in the electricity system. However, from a socio-economic perspective bilateral trading often results in sub-optimality as each individual participant designs contracts by maximizing own profit. Local flexibility markets enable sufficiently supply and demand and increase the overall efficiency. Nevertheless, several barriers must be overcome to facilitate trading in markets. Both trading approaches are vulnerable to dominating actors which is a potential problem in flexibility markets. The illustrative studies implied that grid companies have significantly higher benefits of flexibility than retailers and wind power producers, which exclude these two buyers from trading. This diminishes the released potential of flexibility. A large aggregator changes the divisions of power in the system and acts as a driving force to retrieve supply of flexibility. By doing so, the aggregator can facilitate trading for additional buyers as the grid companies have limited demands of flexibility. The results implied several business opportunities for the aggregator where a combined model can ensure optimal exploitation of his flexibility portfolio. Comprehensive load scheduling models are required to find an optimal allocation. In order to realize the whole potential of demand side flexibility, both contractual and market-based models might be required.