For better or for worse? On the economic and ecologic value of industrial demand side management in constrained electricity grids

Abstract

Electricity systems are in dire need to scale up volatile decentralized renewable electricity supply (RES), reducing the dependency on fossil fuels and drastically cutting carbon emissions. Industrial demand side management (DSM) is a key enabler of the energy transition, as it allows to align large shares of electricity consumption with (renewable) supply. We present a short-term market model to evaluate the economic value (i.e., reduced system costs) and ecologic value (i.e., reduced carbon emissions) of industrial DSM within a constrained electricity grid, incorporating conventional electricity supply (flexibility) and RES. A model evaluation yields four key findings: (1) Grid-capacity constraints determine whether and to what extent industrial DSM may contribute economic and ecologic value. (2) Both the economic and ecologic value of industrial DSM are determined by the location within a capacity-constrained electricity grid. (3) DSM might even increase carbon emissions depending on local merit-orders. (4) Carbon emission pricing may resolve a potential conflict between ecologic and economic DSM-value maximization. Based on these findings, energy policy should (i) establish an electricity market design that provides sufficient local price signals for industrial DSM and (ii) ensure that local merit-orders incentivize industrial DSM to contribute both economic and ecologic value based on appropriate carbon prices.