Computing the value of flexibility in electricity retail, ahead and balancing markets

Renewable generation of energy is becoming more affordable, and is therefore increasingly adopted to match local demand. In addition, storage and demand response solutions have reached the market, which provides flexibility and thereby facilitates intelligent energy management. It has been suggested that this bottom-up flexibility should contribute to the balancing of the future smart grid, but financial incentives have so far been elusive. This article presents computations that assess the profitability of intelligent energy management for three different value propositions: increasing self-sufficiency under typical retail tariffs, or participating in ahead or balancing market price fluctuations, specifically in the Netherlands, Germany and Italy. First, an upper bound valuation of flexibility is computed from 2013 market data. Second, a technology-neutral profit analysis is proposed and demonstrated on selected technologies. Our simulations indicate the highest value for flexibility in the Dutch and German imbalance markets (7.7 & 9.4 €c/kWh) and the Dutch reserve market (10.4 €c/kWh), and for small prosumers in the German and Italian retail markets (12 & 10 €c/kWh). Results indicate that demand response with sufficiently low activation costs can be valorized in electricity markets, which innovative tariffs can exploit for balancing of the future smart grid.