Tariq Abdul Muhaimin Electricity Market of the Future

194 Pages·2015·12.44 MB·English

by  J. Random Author

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Electricity Market of the Future
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Assessing Economic Feasibility and
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ELECTRICITY MARKET OF THE FUTURE
ASSESSING ECONOMIC FEASIBILITY AND REGULATORY
CONSTRAINTS FOR DEMAND RESPONSE AGGREGATORS IN
EUROPE
by
TariqAbdulMuhaimin
inpartialfulfillmentoftherequirementsforthedegreeof
MasterofScience
inEngineeringandPolicyAnalysis
attheDelftUniversityofTechnology,
tobedefendedpubliclyon30June2015.
Studentnumber: 4297237
Supervisor: Prof.dr.ir.P.M.Herder
Thesiscommittee: Dr.ir.R.A.Hakvoort, TUDelft
Dr.ir.B.Enserink, TUDelft
Ir.E.Koliou, TUDelft
Dr.ir.I.Wenzler, Accenture
Ir.R.Kremers, Accenture
B.Marlice, Accenture
Thisthesisisconfidentialandcannotbemadepublicuntil31July2015.
Anelectronicversionofthisthesisisavailableathttp://repository.tudelft.nl/.

Thetruthsticksinourthroatswith
allthesaucesitisservedwith: it
willnevergodownuntilwetakeit
withoutanysauceatall.
Preface
GeorgeBernardShaw
ThisdocumentisanendproductofasevenmonthresearchendeavouratDelftUniversityofTech-
nologyandAccenture,TheNetherlands.Itisintendedforanyonewithatleastabasicknowledgeof
theelectricitymarketsinEurope.Moreimportantly,anyonewishingtoexploretheideaof"demand
response"and"aggregators"intheelectricitymarket,willfindplentyherein.Fromafuturisticmar-
ketconcepttoagenericdemandresponseaggregatorbusinessmodel[alongwithanindicationof
potentialrevenueswithinspotmarkets],thisdocumentismeanttoenrichaninquisitivemind.
Intermsofwritingstyleandcontent,thedocumentaimstobeconversationalandsimple,thus
sometimesmoreelaboratethannecessary.Tomaintaincoherenceinthewritingstyle,Ideliberately
omittedadetailedmathematicaldescriptionoftheadoptedmodellingmethod-SystemDynamics
(SD).ThismeansthatreadersnotacquaintedwithSDwillfeelbelonged,whilereadersacquainted
with SD will feel more belonged. The references in the bibliography are ordered based on their
appearanceinthetext,astylethatIcouldnotchangebecauseitcomesasabaggagewiththeTU
DelftLatextemplate.Isincerelyapologizetothereaderswhoareacquaintedwithanalphabetically
orderedbibliography.
Tomakethemostofthisdocument,IsuggestthatareadershouldnotskipChapters4,5,6and7.
Areaderwithin-depthknowledgeofexistingelectricitymarketscancertainlysavetimebyskipping
Chapter3.AndofcoursetheExecutiveSummaryisbestfor"readers-in-a-hurry".
TariqAbdulMuhaimin
Delft,June2015
iii

YesterdayIwasclever,soIwanted
tochangetheworld. TodayIam
wise,soIamchangingmyself.
Rumi
Acknowledgements
Troublingdays,sleeplessnights,andunwanteddreamscharacterizedthelastsevenmonthsofmy
life. Certainly, Iwouldnothavemadeitwithoutthesupportofmanyindividuals-bothfrommy
personalandprofessionalcircles. Therefore,Iwouldliketoextendmygratitudetoeachandevery
oneofthemhere.But,beforethat,IthanktheAccentureStrategygroupforsupportingmyresearch
bothfinanciallyandintellectually.
Amongmygraduationsupervisors,IwouldliketospeciallythankDr. ir. RudiHakvoort,ir. Elta
Koliou, ir. RobbertKremersandBaartMarliceforprovidingcontinuousanddirectsupervisionin
themostexcellentmanner. TheywerepresentformewhenIneededthemthemost-sometimes
inmysteriousways. IthankDr. IvoWenzlerforgivingmetheopportunitytoworkwithAccenture
Strategy. Dr. BertEnserink,mysecondsupervisor,formakingsurethatIadheredwithcoursestan-
dards.TheChairman,Prof.dr.ir.PaulienHerderforherclear,critical,andcrispcomments.Finally,
Ithankallsevencommitteemembersforshowingconfidenceinmyabilities,providingusefulfeed-
back,andtakingtimeoutoftheirbusyschedulesforeachdiscussionandmeeting.Withoutthem,I
wouldnothavethoseEurekamoments!
Next, I would like to thank all interviewees (listed in Appendix C) for their time and support.
Theirknowledgeandpracticalinputwasextremelyvitalformyresearch.Ialsothankmycolleagues
and fellow interns at Accenture Strategy for making me feel welcome within the company. Frank
Jacobs (Senior Manager in Accenture Smart Grids Services), Sytze Dijkstra (Research Manager at
Accenture)andFrederikMijnhardt(StrategyAnalystatAccenture)forprovidingcriticalinputsdur-
ing my research. Among Robey De Jong, Onno Wesselink, Tim Geraedts, Casper Wennekers, and
ValeriovandenBroek,IfoundnewfriendswithwhomIcouldshareadrink.
AttheUniversity, IspeciallythankmydearfriendsJanuardyDjong, GoutamiRao, KevinKrui-
jthoff, Goher Ur Rehman Mir, Mariam Koshy, Mahtab Aghamiri, Tushar Milan, and Riska Arliana
Ansariforbeingmyemotionalsolace.Ourcoffeebreaks,laughters,anddiscussionsregardinggrad-
uationandourfutureswillremainingrainedinmymemoryforever.IalsothankAniketMitraforthe
interestingdiscussionsaboutdataanalysis. Finally,Iwouldliketothankthemostimportantper-
sonsofmylife.MymotherAsiyaA.R.andson-likenephewHassanforfightingbloodcancerwithso
muchcourage.Thetwoofyouhavebeenthesourceofmymotivationallalong.MyfatherM.A.Ma-
jeedforbeingsopatient,kind,andstrongduringthesedifficulttimes. MybrothersHamza,Khalid,
Yusha, andIrfanforbeingthere. MyunclesSyedMoosaKaleem, SyedOmerFarooq, andMuneer
Ahmedforreducingmyfinancialburdens.Withoutanyoneofyou,Iwouldneverhavemadeit.
TariqAbdulMuhaimin
Delft
v

Contents
ListofFigures xi
ListofTables xv
ExecutiveSummary xvii
I Thesisdefinition 1
1 Introduction 3
1.1 DemandResponse:Theconcept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Enablingtechnologiesneededfordemandresponse . . . . . . . . . . . . . . . . . . . 4
1.3 Smartmeters:Openingthedoorstodemandresponse. . . . . . . . . . . . . . . . . . 5
1.4 Demandresponseforsmallend-users:Entertheaggregator. . . . . . . . . . . . . . . 5
1.5 Readingahead:Thestoryline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 ResearchDefinition 7
2.1 "Toknowwhatyouknowandwhatyoudonotknow,thatistrueknowledge" . . . . . 7
2.2 Morecontext:FocusonindependentaggregatorsandRTP. . . . . . . . . . . . . . . . 8
2.3 Needforacomprehensivemarketmodel . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 ResearchQuestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 ResearchMethods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Researchrelevance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7 Researchplanandexpectedoutcome . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 Assessmentofmarketdesignandsimulationmodel . . . . . . . . . . . . . . . . . . . 14
2.9 Processingofinterviews. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3 EuropeanElectricityMarkets:AnOverview 15
3.1 EvolutionofliberalisedelectricitymarketsinEurope. . . . . . . . . . . . . . . . . . . 15
3.2 ElectricitysystemdescriptionforNetherlands,UK,andItaly. . . . . . . . . . . . . . . 16
3.3 RelevantdifferencesbetweenthethreeMemberStates. . . . . . . . . . . . . . . . . . 19
3.3.1 EnergyDataManagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3.2 Timingissuesforplanningandgateclosure . . . . . . . . . . . . . . . . . . . . 21
3.4 StakeholderanalysisforDRaggregationinelectricitymarkets. . . . . . . . . . . . . . 23
3.5 PoliciesandregulationsrelevantforDemandResponse . . . . . . . . . . . . . . . . . 25
3.5.1 Europeancommunicationspecifictodemandresponse . . . . . . . . . . . . . 26
3.5.2 SDE+inTheNetherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.5.3 Salderingsregeling-TheNettingarrangement. . . . . . . . . . . . . . . . . . . 26
3.5.4 BalancingmarketrulesinTheNetherlands . . . . . . . . . . . . . . . . . . . . 27
vii
viii CONTENTS
II DemandResponseAggregator:ConceptandMarketModel 29
4 DRAggregator:Theconcept 31
4.1 FunctionalitiesandrolesofanAggregator . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.1.1 WhowilltakeuptheAggregatorroles? . . . . . . . . . . . . . . . . . . . . . . . 33
4.2 Naturallymonopolistictendency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3 ShouldtheSuppliers/BRPstakeupCentralAggregatorrole? . . . . . . . . . . . . . . . 35
4.4 Data:How,What,Who. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.1 Databefore-andincluding-themeter. . . . . . . . . . . . . . . . . . . . . . . . 37
4.4.2 Databeyondthemeter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.5 Balanceresponsibilityforaggregators . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5 Marketmodelofthefuture 41
5.1 Marketroles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.2 Thetechnicallayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.3 Thefinanciallayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.3.1 SettlementbetweenProsumersandSupplier/IHA. . . . . . . . . . . . . . . . . 44
5.3.2 ThesettlementbetweenBRPs/SuppliersandAggregator . . . . . . . . . . . . . 45
5.4 TheDatalayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.5 FunctioningoftheModel:Plan,Validate,Operate,Settle. . . . . . . . . . . . . . . . . 49
5.6 Validationofthemarketmodel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.6.1 Conceptualvalidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.6.2 Validationofgenerality:ImplicationsforUKandItaly . . . . . . . . . . . . . . 52
III BusinessModelofanAggregator 55
6 BusinessModelConceptualization 57
6.1 Customersegments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2 Valuepropositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.2.1 Reductionofimbalancecoststhroughportfoliooptimization . . . . . . . . . . 63
6.2.2 TradingDRinbalancingmarkets . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.2.3 TradingDRinorganizedenergymarkets:day-aheadandintra-day . . . . . . . 64
6.2.4 Congestionmanagementinhigh-voltagetransmissiongrid . . . . . . . . . . . 64
6.2.5 Voltagecontrol/congestionmanagementinthedistributiongrid . . . . . . . . 65
6.2.6 Datarelatedservices:Businessmodelsophisticationusingsecondaryservices. 65
6.3 RevenuestreamsofanAggregator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.4 CoststructureofanAggregator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.5 ConceptualisingmonetarypotentialinDAMandIDM . . . . . . . . . . . . . . . . . . 68
7 SimulationModelforassessingbusinesspotential 81
7.1 WhySimulation:Thepurposeofthemodel . . . . . . . . . . . . . . . . . . . . . . . . 81
7.2 WhySystemDynamics? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7.3 Modelbasics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
7.4 Feedbackloops. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.5 Modelfindings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
7.6 CriticalmassforappliancebasedDR. . . . . . . . . . . . . . . . . . . . . . . . . . . . 86