Athir Nouicer

In this paper, we investigate two main schemes for contracting demand-side flexibility by the Distribution System Operator (DSO) at the planning stage: a voluntary demand-side connection agreement where consumers offer their flexibility, i.e., load reduction, to the DSO and a mandatory demand-side connection agreement where the DSO sets the flexibility levels, i.e., load curtailment, to be contracted from residential consumers. A different bilevel equilibrium model is used for each demand connection agreement scheme. In both models, the DSO, in the Upper Level, decides on the flexibility price and network tariffs. Residential consumers react to those signals in the Lower Level. They can be prosumers that invest in solar PV and batteries or passive consumers. The paper answers two regulatory issues. The first is which option to choose for regulators between mandatory and voluntary demand connection agreements. We find that mandatory demand-side connection agreements result in higher welfare gains compared to voluntary ones and a lower price for flexibility. However, such agreements may entail some implementation issues for regulators and different curtailment levels among consumers. This connects with the second issue investigated in this paper on how to implement mandatory demand connection agreements from equity and feasibility perspectives. When introducing a pro-rata constrained mandatory scheme, curtailing consumers equally, we find that welfare levels are still higher than under the voluntary scheme but lower than in the unconstrained mandatory scheme. The difference in welfare and flexibility levels between the two mandatory schemes could represent a potential for a secondary flexibility mechanism, where consumers trade flexibility between themselves.

Demand-side flexibility can be incentivised to reduce the need for investment in distribution grids either implicitly or explicitly. Implicit demand-side flexibility is when prosumers react to price signals triggered by network tariffs. Explicit demand-side flexibility is when the DSO can contract flexibility. In this paper, we focus on one contractual arrangement: mandatory curtailment by the DSO for a fixed level of compensation. We develop a long-term bi-level equilibrium model. The upper level (UL) is a regulated DSO deciding on the network investment and/or curtailing consumers for a fixed level of compensation. The lower level (LL) consists of consumers, which can be prosumers or passive consumers. Prosumers can invest in solar PV and battery systems. They react to the network tariffs and to the compensation provided by the DSO for curtailing them. The regulated DSO anticipates the reaction of the consumers when investing in the network and when setting the level of curtailment. Network tariffs are set to recover the network costs and the payments made to consumers that have been curtailed. We find that the economics of explicit demand-side flexibility in distribution grids are positive, and they are more positive when tariffs are cost-reflective. This implies that we cannot avoid redesigning tariffs by using explicit demand flexibility. We also find that setting an appropriate level of compensation is difficult in the presence of prosumers and passive consumers. A level of compensation that is high enough for passive consumers will be gamed by prosumers.

A major problem in the expansion of renewable energies sources is finding the most adequate way to support them. The design of a suitable support scheme is necessary for an efficient development of renewable energies sources (RES). In Brazil, Many projects are delayed after getting the construction license due to financing problems. Some of them are even abandoned. Experiences of two European countries (Germany and UK) were analyzed in order to find efficient alternatives for RES expansion in Brazil. These countries are currently implementing new RES support schemes in order to increase electric systems’ efficiency; Contract for differences for UK and a tendering scheme in Germany. The recent results show mitigated outcomes. They are however encouraging considering investors caution against new regulatory policies. Brazil has already adopted a similar scheme, the auction mechanism, since 2004. Still, its share from RES apart from hydro and biofuels is very small, 4% for wind energy and less than 1% for solar energy. It has, nevertheless, an attracting potential. To investigate on this problem, we applied a Real Options approach to value the investment opportunities in a wind farm project. Compared to the traditional NPV calculation, The Real Options method excels in terms of covering the managerial flexibility for delaying the investment decision. The considered project is subject to a multistage investment strategy consisting of design, construction and operation phases. A binomial approach through a decision tree was elaborated to model the investment opportunity. Two scenarios were adopted for wind farms that will participate in the 2017 A-3 auction. The results suggest that the option of delaying the project has significant value, since the investor can wait until the uncertainties get revealed. This study can serve as a guide to ANEEL, the Brazilian electricity regulatory agency, and to RES investors for the type of strategy to undertake in order to increase RES generation in Brazil.