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Long-term Contracts for Network-supportive Flexibility in Local Flexibility Markets

Erik Heilmann (), Nikolai Klempp, Kai Hufendiek and Heike Wetzel ()
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Erik Heilmann: University of Kassel
Nikolai Klempp: University of Stuttgart
Kai Hufendiek: University of Stuttgart

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: With an ongoing energy transition, the electric network is increasingly challenged. Handling congestion is a major responsibility of network operators. In recent years, market-based approaches to utilize network-supportive flexibility, especially local flexibility markets (LFMs), have been discussed as possible future development of congestion management processes. LFMs are a promising opportunity for the effcient, transparent and non-discriminatory integration of new flexibility options, in particular demand-side flexibility. Despite a wide body of supporting literature and several pilot implementations, there is still no common commitment to the concept of LFMs in the European Union. Here we address decision makers in the European energy economy, especially network operators, and discuss a possible flexibility product design using a methodological approach with four steps. First, we review the theoretical background of LFMs, considering both network operators' views and the possibility of demand response as a flexibility provider. Based on this review, we formulate an interim conclusion regarding requirements for flexibility product design in general. Second, using an existing framework, we propose a concrete, capacity-based, long-term flexibility product specification. Third, we discuss compliance between the defined requirements and the proposed product design to highlight the relevance of key design parameters and identify further research needs. Finally, we derive policy implications for network operators' decision makers regarding the implementation of LFMs.

Keywords: demand side flexibility; local flexibility market; congestion management; flexibility product design (search for similar items in EconPapers)
JEL-codes: D47 L94 Q41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2022
New Economics Papers: this item is included in nep-cta, nep-ene and nep-reg
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