Demand Response will be a major facilitator for the energy transition. As we move our system away from the centralised, fossil-fuel-dependent model to a more decentralised and renewables-forward version, the role of flexibility services like demand response contracted through aggregation will be critical to maintaining the system balance and ensuring the most efficient use of energy from renewable sources.
A key vehicle we see for bringing together significant enough loads to have such an impact on the system is through independent aggregation. In this paper, using the USEF framework, we intend to outline the major existing compensation models for independent aggregation, provide an assessment of their efficiency in the market, and highlight additional elements which could be considered for an EU-level model. In the Annex, we will provide some additional context provided by our members on how these models are applied in their countries and any barriers that may need to be considered when developing a European framework.
Before we dive into the compensation models, it is important to outline the attributes of the aggregator-supplier relationship which we will use to describe the different models. The USEF framework identifies four key aspects of this relationship:
- Contractual relationship – determining the need for a contractual relationship between the supplier and the aggregator. While the details of a contractual arrangement can be negotiated bilaterally, requiring a contract can affect the playing field for aggregators, so it is necessary to assess this aspect when implementing the aggregator’s role.
- Balance position / balance responsibility – How and if the aggregator assumes or assigns balance responsibility. As a party trading flexibility in the market, aggregators can cause system imbalance by not delivering the agreed-upon level of flexibility. To mitigate this, the aggregator may need to assign a balance responsible party (BRP). Beyond this, if an aggregator and a BRPSUP are active in the same connection, the aggregator’s activity can cause a deviation from the projected behaviour of the prosumer, which if not properly communicated to the BRPSUP can impact their balance position. The aggregator’s balance responsibility and the BRPSUP’s balance position must be considered in the aggregator remuneration model.
- Sourcing position – The balance between electricity sold to final customers and electricity sourced in the market. The sourcing position of the supplier will be affected when an aggregator initiates flexibility from a customer, either by reducing the amount of already sourced energy being sold or by driving up demand when energy hasn’t been sourced. This can also apply to the aggregator, if they want to sell energy (particularly in the wholesale market) they must source it intentionally, and this is generally done through the supplier. This sourcing and selling of electricity between suppliers and aggregators is called “transfer of energy” (TOE). The remuneration model must define the mechanism to correct the sourcing position, its price, and the settlement mechanism.
- Information exchange and confidentiality – the information requirements for the processes of the different market roles, their required aggregation level, and what information is considered confidential. For confidentiality, we must identify what aggregation level is considered commercially sensitive.
It is worth noting that this paper is focusing on remuneration models where the supplier and aggregator are operating independently from one another. But there are a few instances in the current European energy market where aggregation is not independent from the supplier. These include the integrated model and the broker model. For more information on these models, we refer the reader to the Nordic Energy Research and Nordic Council of Ministers report on the regulation of independent aggregators.