Demand Response: For Congestion Management Or For Grid Balancing?

The growing capacity of intermittent energy sources causes more frequent system imbalances as well as congestion. Demand flexibility is a valuable resource that can be used to resolve these. Unfortunately, flexibility can also contribute to congestion, particularly when used to balance the grid. Using flexibility to solve grid problems without creating new ones requires well-designed financial incentives. Congestion management mechanisms (CMMs) are a primary example of such incentives. The question is which of these is most effective in preventing congestion with minimal impact on trading on the imbalance market. This question is answered by comparing traditional CMMs such as grid tariffs to a local flexibility market on their impact on the load in the grid and the lost value of flexibility on the imbalance market. This analysis shows that energy tariffs are not suited for preventing congestion. Capacity tariffs are able to prevent congestion but they impose limitations on the consumer which significantly reduce the value of flexibility on the imbalance market. The flexibility market, an example of a local market, is effective if aggregators do not have a position day ahead or if the distribution system operator limits the buying of flexibility a day before delivery.