Decentralised Flexibility Requires Signals from the Grid

The power system is becoming more decentralised: volatile generation far from centres of demand, new types of electricity consumers, rising demand and more frequent grid congestion mean that generation and consumption must be coordinated more closely at the local level. The greatest efficiency gains come from concepts with price signals that are location- and time-dependent and therefore reflect the scarcity of grid capacity. These include smart markets, local flexibility markets and cellular energy systems.

This is the finding of the EWI study “Decentralised Energy Systems: A Comparison of Approaches to Coordinating Local Flexibility and Their Applicability” by the Institute of Energy Economics at the University of Cologne (EWI), prepared as part of the eCells research project (grant number 03EI4088E). The study provides a consolidated comparison of twelve decentralised energy system concepts, ranging from time-varying grid tariffs, tenant electricity models and virtual power plants to local flexibility markets and cellular energy systems, and classifies them according to regulatory, grid-related and market-based criteria.

From instruments already tested in regulation to purely theoretical concepts

The EWI study examines the concepts along two dimensions: (1) the efficiency of allocative signals and of the coordination of generation and demand, and (2) their applicability within the current regulatory framework. The highest efficiency contribution is achieved by approaches that incorporate the location and timing of scarce grid resources into their incentive structure. Concepts that instead focus primarily on higher self-consumption (tenant electricity, microgrids) or on market-driven marketing without any grid reference (virtual power plants) achieve smaller effects. At the same time, the concepts differ considerably in their maturity: instruments such as redispatch or tenant electricity are already anchored in regulation, whereas local flexibility markets and smart markets so far exist mainly in pilot projects, and cellular energy systems remain largely a theoretical concept.

“What matters is that incentives take effect precisely where grid capacity is actually scarce. Concepts without a grid reference often optimise locally, but they do not solve the underlying system problem,” says Dr.-Ing. Ann-Kathrin Klaas, Head of Research Area at EWI, who prepared the study together with Merit Dressler, Jakob Junkermann, Ján Koreň, Lisa Restel and Marisee Viehweger.