Welfare redistribution through flexibility – Who pays?

Abstract

The increasing adoption of electricity-driven technologies, such as electric vehicles and heat pumps, is a key driver of the energy transition. If operated flexibly, these assets can influence electricity price formation and trigger a redistribution of welfare from producers to consumers. The magnitude and direction of this redistribution are likely to vary across technologies and end-user groups, depending on their flexibility potential and usage behavior. To explore these dynamics, this study quantifies redistributional effects by integrating diverse flexibility options and user groups into a high-resolution European dispatch model, simulating multiple flexibility use cases across the transport and heating sectors in Germany. Our findings show that while total system welfare increases slightly, greater flexibility leads to a significant redistribution of welfare from producers to consumers. Notably, consumers benefit as an aggregated group, regardless of whether they provide flexibility. Among the assessed flexibility options, electric vehicles – particularly through bidirectional charging – offer greater welfare gains compared to heat pumps, while also intensifying competition with utility-scale batteries. In the transport sector, flexibility leads to notable variations in electricity costs depending on charging behaviors, whereas in the heating sector, increased flexibility promotes cost convergence.