1 ECONOMIC POTENTIAL OF DEMAND SIDE MANAGEMENT IN AN INDUSTRIALIZED COUNTRY – THE CASE OF GERMANY
Economic potential of demand side management in an industrialized country – the CASE of Germany
Moritz Paulus, Institute of Energy Economics,University of Cologne, Phone: +49-221-1791817,
Frieder Borggrefe, Institute of Energy Economics, University of Cologne, Phone: +49-221-4702443,
[2nd Author’s Name, Affliation, Phone, email]
[Other Author’s Name, Affliation, Phone, email]
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Overview
This paper provides results from model-based analysis of long-term investments into demand side management (DSM) potentials for the German power market. Installed wind capacity in Europe is expected to rise from today’s figure of 57,2 GW, to 226,7 GW in 2020 (Benston, 2008). The current volatility in forecasted wind supply already affects European electricity systems (Auer et al. 2005, Bartels et al., 2006). Wind supply uncertainties further affect the reserve capacities and demand for balancing power to ensure reliable electricity generation (Brückel et al. 2006, Geiger et al. 2004). A large study of the transmission system operators (TSO) and the German Energy Agency (Bartels et al., 2006) showed that despite of improved wind forecasts, increased wind capacities will lead to a growing demand for positive and negative balancing power in Germany. In 2015 the maximum hourly demand for positive and negative regulating power will increase threefold compared to 2003. Firstly, the article investigates the impact of investments into demand side management technologies on the balancing markets in Germany. Secondly, it will assess the ability of demand side management to integrate volatile renewable energy feed-in into the spot market.
The model looks at a long term perspective up to 2020 and investigates 5 different industrial processes and 8 different household appliances. The processes and appliances were selected on the basis of overall consumption, energy intensity and existing participation in the reserve power markets. Calibration of technical properties and longterm technical capacity potentials are based on an analysis of German household appliances (Stadler, 2007) as well as a thorough industry survey. The model extends the European electricity market simulation DIME and determines the impact on prices, cost of electricity supply and overall welfare effects.
Methods
Klobasa (2007) investigates the potential of industry, retail and household sectors to provide demand side management in spot and balancing markets by a model-based analysis. His analysis uses a model optimising power plant dispatch for one year on an hourly basis. However, the installed demand side management capacities are fixed exogenous parameters to the model. Our analysis models demand side management capacity investments endogenously. This allows us to quantify the ratio of the technical DSM capacity potential which can be integrated economically into the electricity system.
Demand side management can be applied in two ways; load shedding and load shifting. By load shifting, load is shifted from high price periods to low price periods, thus levelling out volatile power prices and reducing overall system costs. Load shedding involves load reduction in periods with high power prices without later load catch up. However, the lost process output can invoke significant opportunity costs. Both potentials for load shedding and load shifting depend primarily on the underlying properties of the industrial process or household appliance and its electricity usage. The required process data for the energy-intensive industries was obtained in interviews with representatives of the energy intensive industry. The analysis of technical properties of household appliances for DSM is based on the research of Stadler (2007). The following types of appliances and processes can be distinguished:
Table 1: Analysed household appliances and energy-intensive industrial processes.
Household appliances / Energy-intensive industrial processesLoad shifting / Load shedding / Load shifting / Load shedding
Electric appliance / tumblers, washing maschines, dish washers / Heating pumps / Chloralkali electrolysis, / Aluminium electrolysis, electric arc furnace
Thermal appliance / Night-storage heater, water supply, Fridges, refrigerators / Cement mills
Mechanical appliance / Wood pulp
The modelling approach for DSM is based on an extension of the linear cost minimization model DIME, which has been developed at the University of Cologne (Bartels, 2008). The model is a largescale dispatch and investment model and aims to analyse and simulate competitive electricity markets in Europe. Based on todays installed power plant capacities, the model determines the cost efficient investments into power plant capacity and scheduling of power generation. Corresponding to the conventional generation technologies an array of DSM technologies is implemented. Based on model runs the investments into DSM, and thus the economically feasible potentials for processes and appliances, are derived up to the year 2020.
Results
Demand side management will improve long-run market efficiency in the electricity markets. Effects on on the investments in the conventional electricity market are significant. Investment volume into new conventional power plants can be reduced by around 2%. Industrial processes will provide more than half of capacity reserve in the tertiary reserve market for positive regulating power in 2020. Using smart meters in households is, despite of considerably high investment costs, partly economically beneficial. Volumes for load shedding and load shifting remain comparatively small, lying below one percent of total annual load in Germany. Totalcumulated system cost reduction lies in the range of ~0.3% until 2020 compared to the same scenario without demand side management. Besides the total system costs the study also analyses the merit order curve for capacity reserve and actual use of positive and negative balancing power.
Figure 1: Selected model outputs after integration of demand side managementpotentials in DIME for the year 2020.
Conclusions
We conclude that the main advantage of demand side management in the investigated processes and appliances will be the cost savings generated by the supply of tertiary capacity reserve. Main reasons include that DSM potentials in energy intensive processes have been already exploited to a large extent and that most investigated processes can only engage in load shedding which comes at the cost of a very high value of lost load. The significant contribution to tertiary capacity reserve will reduce capacity requirements for peak load power plants considerably. DSM potentials in household appliances remain partely untapped due to a lack of change in customer behaviour. Furthermore, potentials in households could be severly restricted if night storage heaters become banned as it is currently planned by the German government. In comparison to Klobasa (2007), we find partly similar DSM potentials in comparable appliances and processes. However, the economically feasible part of technical DSM potential is significantly lower in our case resulting in smaller load shedding and load shifting capacities. Nevertheless, certain demand side management technologies promote significant total costs reductions. In combination with other flexibility options they are a valuable option for integration of wind energy.
References
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