Linking meters and markets: Roles and incentives to support a flexible demand side

Abstract

Present trends in the development of electricity systems are expected to generate a growing need for flexibility in decentralised resources, including demand response. In order to enable decentralised actors to create value, the organisation of markets and incentives should incorporate these new participants. The roll-out of smart metering to electricity consumers is an important precondition to establishing a flexible demand side and will provide essential information flows. On the basis of current incentive structures and related risks, however, the pass-through of information and value from wholesale market participants to the demand side is mostly infeasible, resulting in flexibility tasks being aggregated and delegated to balancing responsible wholesale traders. This analysis focuses on whether current incentives and roles are appropriate and where the design could be improved to establish a flexible demand side with a particular focus on the Danish case. Design-related barriers are identified that affect expected value, associated risks, and the distribution of responsibilities. This serves as a basis to define policy options in the context of Nordic electricity markets.