Power capacity of the customers. A review of projects in the 'Market Design' programme

An important discussion in later years has been whether the necessary reserves in the electricity market are to be generated through normal market mechanisms, i.e. with the price as the primary controlling parameter, or if it requires a collectively financed effect reserve and how regulations in such a case should be shaped. The issue is first and foremost a matter of where the line is drawn between that which 'the market' should handle and that which can be assured through regulation. Autumn 2002 Svenska Kraftnaet presented an investigation to the government in which it was suggested that the effect balance should primarily be managed through the use of normal pricing mechanisms, but that the state should strengthen responsibility for the nation's effect balance in the period up until 2008. When approaching an effect loss situation, spot prices and the price of balancing power will skyrocket. Today, most people are in agreement that a condition for maintained delivery safety is that normal pricing mechanisms are in place and that consumption actually is affected by high prices. The main reason for this conclusion is that it is very expensive to keep production facilities in reserve for situations that are expected to occur very seldom - it is cheaper to encourage large customers to reduce their consumption. The other reason is that increased price sensitivity creates conditions for a more stable and more predictable pricing development in strained situations. While being aware that a response to increased demand is needed, we see too little of that on the market today. The aim of this project is to present concrete measures that will awaken this slumbering resource. In order to judge how much effect reduction can reasonably be expected and if there is any financial gain for customers, electricity suppliers and grid operators; it has been necessary to cast a few predictions about future price peaks. We estimate price peaks in the 3-10 SEK/kWh interval for an average of 40 hours per year. Judging from the work presented in this report, it appears probable that there is a significant ability and interest among customers to reduce their consumption as long as the economic incentives are large enough. With price peaks we have estimated it should be possible to achieve load reductions of around 2 000 MW, probably more. It must be made clear that this is not a persistent effect reduction. What we have mainly focused on are the consequences of a price peak over three hours in the morning. A large part of this untapped potential lies in the many electrically heated family homes. In order to extract this capability, a large obstacle must be overcome. With the measuring equipment we have today, and even the minimum required equipment after 2009, the economizing effect in this group is of no interest. In our report we have highlighted five different business models that can contribute to realizing the existing potential. They are clear concepts and relatively simple to carry out, as well as having the potential to provide economic benefits to all involved: customers, electricity suppliers and grid owners. Perhaps the most interesting business model aimed at smaller customers is one we have called 'Fixed price with return rights' after a model by Trondheim Energi in Norway. If this model were to be launched widely to smaller customers instead of today's 'Take and Pay contract' it would open up for many new possibilities