Evaluation Methods for Market Models Used in Smart Grids

Abstract: The European Union has set environmental targets on climate change in three areas: energy efficiency, renewable energy sources, and reduction of emissions. These targets are the main driver for the change in today’s power system. The defined targets do not only affect the production and distribution of electricity but also raise questions on how electricity is being consumed. An essential building block of an efficient power system is often referred to as the smart grid. One of the important components of a smart grid is dynamic market models that facilitate demand response. Residential customers account for a relatively large portion of the total electricity consumption in Europe but relatively little is known about dynamic market models used in the residential sector. Pilot projects concerning dynamic market models have been conducted, but there is a lack of common evaluation methods to assess them.    This report investigates how pilot projects concerning demand response can be evaluated and presents a compilation of 135 international pilot projects and their results. The evaluations methods and findings from the international compilation are then applied to assess the proposed dynamic market model for the Stockholm Royal Seaport. Four evaluation criterions have been identified. The first relates to the demand response resource that is being studied and its impact on the results of the pilot project. Secondly, design principles of the pilot project must be considered. Thirdly, the division of costs and benefits among stakeholders must be calculated. Lastly, the precision of these measures must be taken into consideration. The compilation of international pilot projects reveals that dynamic markets models are often combined with modern technology. Combinations of market models, feedback and technology have an impact on overall electricity conservation and peak reduction. The reductions also depend on what electrical appliances are being used by the household members and their willingness to change their behavior. Customer acceptance is generally large among participants in pilot projects concerning dynamic market models. The hypothesis for the Stockholm Royal Seaport, in which five to fifteen percent of the load can be shifted from peak hours to off-peak hours with the proposed market model for the Stockholm Royal Seaport, is estimated to be reasonable. Load shift would lead to savings in the range between 64 – 266 SEK per year, which accounts for 1 – 4 % in bill savings. If the proposed dynamic market model is compared to fixed one month contracts, which includes retail price and fixed network tariffs, the bill savings were estimated to have been 563-766 SEK in year 2010. This corresponds to bill savings in the range of 8 – 11 %. Keywords: Smart grid, demand response, market model, evaluation methods for pilot projects, Stockholm Royal Seaport