Risk implications of investments in demand response from an aggregator perspective

Jonas Katz, Lena Kitzing

    Research output: Chapter in Book/Report/Conference proceedingArticle in proceedingsResearchpeer-review

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    Abstract

    Aggregators are expected to play an important role in making households provide flexibility to the electricity system. We investigate the business case of aggregators offering a demand response product in a competitive retail market, then directly accessing their customers’ flexibility through remotely controlled demand response devices and marketing it on the electricity markets. As the value of flexibility largely relies on price variations, we use a stochastic electricity price model, which we combine with a linear optimisation program and a cash-flow model to determine expected operating gross margins and their probability distributions. We find that, for a case of Danish residential customers with optimistic assumptions on the available flexibility in terms of flexible volumes and load-shift time horizons, the benefits may be in the range of current investment cost for automation equipment. Furthermore, a Value-at-Risk analysis shows that income expectations are rather stable with more upside than downside potential. With foreseeable cost reductions for smart devices the aggregator business case might soon become attractive, particularly in markets with high shares of renewable production.
    Original languageEnglish
    Title of host publicationProceedings of the 39th Annual IAEE International Conference
    Number of pages16
    Publication date2016
    Publication statusPublished - 2016
    Event39th IAEE International Conference - The Norwegian School of Economics (NHH) , Bergen, Norway
    Duration: 19 Jun 201622 Jun 2016
    http://iaee2016nhh.no/

    Conference

    Conference39th IAEE International Conference
    LocationThe Norwegian School of Economics (NHH)
    CountryNorway
    CityBergen
    Period19/06/201622/06/2016
    Internet address

    Keywords

    • Demand response
    • Aggregator
    • Cash-flow model
    • Stochastic electricity price

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