Power markets have become increasingly liberalized over the past decade, contributing to the affordable and secure operation of our power systems. One of the final steps of this liberalization process is the development of flexibility markets for system operators.
Energy flexibility markets enable the buying and selling of generation, usage, and storage to ensure balancing and/or alleviate grid congestion, hence avoiding outages. Such markets are critical for the renewable energy transition.
Balancing-only flexibility markets have been in place for over ten years, with different degrees of openness toward decentralized energy resources (DER). Now, we’re also seeing the emergence of local markets to support DSOs in the management of distribution-related congestion.
In an interconnected system with more and more flexible assets connected at the distribution level, we must ensure that flexibility is used at the right time, in the right place, and by the right actors in order to reach a holistic optimum. Achieving this requires new kinds of flexibility markets that enable TSO-DSO coordination.
Because conditions (e.g., regulations, DER penetration, roles and responsibilities) vary between countries, there is no single flexibility market model that works everywhere. At N-SIDE, we have experience designing flexibility markets based on different models dependent on geography.
In this article, we’ll provide three examples of real-world flexibility markets developed and implemented by N-SIDE, and demonstrate how they enable TSO-DSO coordination while also ensuring economical efficiency, institutional simplicity, and technical scalability.
Project location: Germany
Market type: Multi-platform local market
In Germany, the EUniversal UMEI Consortium brought in N-SIDE to help solve one big problem: How can you optimize flexibility when there are several market platforms being used?
Rather than centralizing everything under one market platform (i.e., a common market), N-SIDE was able to work within the existing multi-platform context by developing a new tool called the Optimal Bid Recommender.
The Optimal Bid Recommender, which is designed to be used by DSOs and TSOs, fetches offer data from each of the different market platforms as well as constraints and flexibility needs data from the system operator. It then combines these data to provide optimal recommendations on which flexibility offers to activate.
In the EUniversal project, this tool was used specifically by the DSO. However, it is flexible and can be used by both DSOs and TSOs in the future.
Economical efficiency: At the local level, this market model enables getting the most value from flexible assets while promoting competition to reduce overall sourcing costs. Efficiency has not yet been demonstrated at the TSO level.
Institutional simplicity: Because there is no need to share network data outside of the system operator’s organization, this model is very simple. However, some legal/regulatory questions remain.
Technical scalability: This model is very easy to scale by building several parallel markets. It is designed to keep complexity under control using aggregated assets and headroom.
Project location: Norway
Market type: Multi-level market
Statnett, the Norwegian TSO, brought in N-SIDE to help design and implement a multi-level flexibility market that met their unique needs.
Norway relies heavily on hydroelectric power, which is by nature very flexible. In addition, the country is split into five bidding zones, which often have intra-zonal congestion issues. These issues reduce the welfare generated by inter-zonal balancing.
Statnett was also seeking a solution that would be compatible with larger regional reforms, such as the upcoming connection to MARI.
N-SIDE’s solution is a hierarchical approach known as “Residual bid curve.” This solution…
In this market model, flexibility is established within each DSO grid before sharing bids with the TSO, thereby enabling TSO-DSO coordination. It remains feasible under even very complex conditions.
Economical efficiency: This market resolves and avoids congestion with maximal liquidity and minimal risk of gaming. However, it does depend on the flexibility merit order of participating units.
Institutional simplicity: This market has a clear governance model and is compatible with other balancing processes including MARI. However, some legal/regulatory questions remain.
Technical scalability: This market offers fast calculations and solid compatibility, making it highly scalable. However, there are still some uncertainties about the impact of bids on distribution flows.
Project location: Cornwall, UK
Market type: Common market
In Cornwall, Centrica built a proof-of-concept local energy market to help increase the penetration of renewables. N-SIDE was called upon to develop and implement the advanced clearing engine that powered the market.
The Cornwall project was unique in that it used a common market. In this market model, the TSO, DSO, and flexibility providers all use one centralized flexibility trading platform.
The neutral, impartial platform developed by N-SIDE accounts for all grid constraints and enables the TSO and DSO to bid on flexibility services, which are optimally matched with offers from homes, businesses, and flexibility service providers.
This common market enabled very close coordination between the TSO and DSOs.
Economical efficiency: This market maximized welfare by accounting for all constraints and needs and providing the most efficient and feasible solution. It is also capable of forwarding any remaining flexibility to other markets.
Institutional simplicity: Because it is centralized, this market model has more complex governance and information-sharing challenges than non-common markets.
Technical scalability: This model worked very well in Cornwall. However, scalability in larger areas still needs to be demonstrated.
There is no one-size-fits-all approach to designing and implementing flexibility markets. The right model for your country might mirror one of the real-world examples described in this article, or be entirely unique.
N-SIDE can help you understand the unique conditions of your geography and design the best energy flexibility market for your needs. Our deep experience in electricity market design and power matching for system operators makes us the ideal partner for optimizing TSO-DSO coordination.
Arnaud holds a master’s degree in Electromechanical Engineering from UCLouvain with a specialization in power systems. After several years working for a system operator, he joined N-SIDE aiming for new challenges. He is now working mostly on local energy markets and flexibility management problematics through various industrial and R&D projects.Arnaud Debray