End-user flexibility and network investments : a study on utilizing end-user flexibility to defer capacity increasing investments in the Norwegian distribution network

2017

The electricity value chain is facing several challenges. The transport sector is electrified, the

electricity system digitalized, and generation decentralized. These trends transform the

outlook of the electricity system. In the Norwegian electricity system, new consumption

patterns and changing load profiles increase an already apparent need for reinvestment in the

aging network infrastructure.

Increasing network capacity through investment in physical infrastructure is costly. Network

operators model network capacity based on the few hours of year with peak demand, resulting

in low utilization rates of excess capacity. Thus, network operators consider alternative ways

of increasing capacity, which are less costly and more flexible. One such option is end-user

flexibility provided from the demand side of the electricity system.

The analysis is based on an investment case provided by Skagerak Nett. We discuss different

scenarios of utilization, flexibility volume and predicted load increase, and investigate how

different compensation methods affect the benefits of utilizing end-user flexibility to defer

investments. We find evidence that utilizing end-user flexibility to defer investments have cost

saving effects under certain conditions, depending on flexibility volumes, utilization level and

compensation method. Network operators can reduce costs by using end-user flexibility to

manage malfunctions in transformers and peak loads in normal operations.

A key finding in the thesis it that the choice of compensation method has a large impact on the

change in revenue cap and efficiency in the regulatory model. By issuing direct payments,

end-user flexibility results in a lower efficiency, although a higher revenue cap, while

redistribution of network tariffs have a marginal effect on changes in efficiency and revenue

cap. Through redistribution of network tariffs, the network operator can defer investments

without a notable increase in the revenue cap or change in efficiency. The results from the

different end-user flexibility cases highlight some of the future challenges the regulator face

in setting a regulatory framework for end-user flexibility