How Decentralized Flexibilities Impact Markets & Grids

Decentralized flexibility, such as adjustable charging of electric vehicles, can lead to congestion at the distribution grid level if it is based solely on wholesale prices. This is demonstrated by a team from the EWI in a new working paper. However, with efficient local coordination – the most system-friendly scheduling of demand – there is potential to reduce grid congestion and avoid excessive grid expansion with minimal losses on the wholesale electricity markets. The analysis shows that the use of decentralized flexibility, using the example of electric vehicles, and the curtailment of photovoltaic systems is an order of magnitude cheaper than the costs of a comprehensive distribution network expansion when perfectly coordinated locally.

In their working paper “Flexibility in electricity wholesale markets and distribution grids: An integrated model and its application to electric vehicles in Germany,” Arne Lilienkamp, Nils Namockel, and Jun.-Prof. Oliver Ruhnau examine how restrictions in the distribution grid, assuming perfect local coordination, influence the charging of electric vehicles, the curtailment of decentralized photovoltaic systems, and, above all, the wholesale electricity market. To this end, the team developed an approach for the integrated modeling of distribution grid restrictions in electricity market models, thereby addressing a gap in electricity market modeling. The working paper was produced as part of the VISE – Smart Data (EFO 0151D) research project at the University of Cologne, funded by the Ministry of Economic Affairs, Industry, Climate Protection, and Energy of the State of North Rhine-Westphalia.

“Previous studies have either focused on flexibility in wholesale trading and neglected potential distribution network bottlenecks, or they have focused on flexibility in the distribution network and neglected interactions with wholesale price formation. Our approach brings both together,” explains Jun.-Prof. Oliver Ruhnau. “We show that decentralized flexibility has great value in wholesale electricity trading, even after taking distribution network bottlenecks into account. To leverage this value, efficient local coordination mechanisms are required in the electricity market.”