Regulatory capital and social trade-offs in planning of smart distribution networks with application to demand response solutions

Abstract

Under the current UK regulatory framework for electricity distribution networks, asset upgrades are planned with the objectives of minimising both capital costs (and thus customer fees) and social costs such as those associated with carbon emissions and customer interruptions. This approach naturally results in economic trade-offs as network solutions meant to reduce social costs typically increase (sometimes significantly) capital costs, and vice versa. This can become an issue in a smart grid context where new operational solutions such as Demand Response (DR) may emerge. More specifically, even though there is a general belief that smart solutions will only provide benefits due to their potential to displace investments in costly assets (e.g., lines and substations), they may also introduce trade-offs associated with increased operational expenditure, power losses and emissions compared with networks with upgraded assets. On the other hand, the flexibility inherent in smart solutions could be used to balance the different types of costs, leading to attractive cost trade-offs if properly modelled, quantified and regulated. However, given the fundamental "non-asset" nature of DR, properly quantifying the resulting trade-offs so

Power system stability in the transition to a low carbon grid: A techno‐economic perspective on challenges and opportunities

“…Subscribed customers are subsequently paid for their reduced demand, so that, effectively, a distribution network market can be established by distribution system operators where customers trade their operational demand against network investment (Schachter et al, 2016). More recent advanced options include post-contingency DRS that limit the impact on end-user customers while bringing substantial benefits in terms of deferring network asset investment at minimum or even lower risk (Martínez Ceseña et al, 2016). At the distribution utility level, demand response can also be achieved (Aurecon, 2020) by lowering the voltage in distribution feeders, and thereby reducing the demand based on conservation voltage reduction principles.…”

Distribution-Level Flexibility Market for Congestion Management

“…Demand flexibility allows the DSO to manage grid congestions by avoiding demand peaks. This can possibly lead to deferring the need for network reinforcements [32], decreasing the total capital and operation expenditures of distribution networks [33]. In addition, demand flexibility provides more resources to manage the requirements of the increasingly high penetration of DERs based on RES.…”

A Decentralized Local Flexibility Market Considering the Uncertainty of Demand

“…To summarize, demand flexibility allows the DSO to manage grid congestions by avoiding demand peaks. This can possibly lead to deferring the need for network reinforcements [37], decreasing the total capital and operation expenditures of distribution networks [38]. In addition, demand flexibility provides more resources to manage the requirements of the increasingly high penetration of DERs based on RES.…”