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The Economics of Flexible Electricity Demand

  • In electricity systems, supply traditionally follows demand. Consequently, economists have focused on analyzing supply while assuming perfectly inelastic demand. Demand flexibility, if at all, occurred in deterministic patterns, such as during peak and off-peak periods, incentivized by static time-of-use tariffs. Nowadays, the role of electricity demand is changing fundamentally: growing shares of fluctuating wind and solar energy require flexibility in a larger quantity and on a stochastic basis; increasing loads of electric vehicles, heat pumps, and hydrogen electrolyzers could provide flexibility through battery, thermal, and gas storage; and the introduction of smart meters enables dynamic real-time tariffs and an automated response of distributed loads. This cumulative dissertation contributes to the economic understanding of flexible electricity demand with five scientific articles. Article 1 starts with reviewing the role of electrification in decarbonization scenarios for heating and road transport in Germany. The article finds that decarbonization drives electrification, leading to an increase in electricity demand by a factor of roughly two. Direct and indirect electrification options are contrasted with respect to their distinct flexibility potential. Articles 2 and 3 explore the implications of decentralized electric heat pumps and centralized electrolytic hydrogen, respectively, for the market value of renewables. Both use the same numerical electricity market model. Article 2 finds that the volatility of the heat pump’s electricity demand challenges the electricity system, which becomes apparent in increasing load cost. A flexible operation of heat pumps may reduce this challenge, but potential benefits for the market value of wind energy are minor. By contrast, Article 3 shows that hydrogen electrolyzers have the potential to stabilize renewable market values at high renewable market shares effectively and permanently, because additional renewable supply can trigger investment in additional hydrogen electrolyzers with additional demand. Articles 4 and 5 investigate the flexibility of the current electricity demand using econometric models with instrumental variables. Article 4 reveals that, at an hourly temporal resolution, the aggregated electricity demand in Germany is indeed price-elastic; it decreases by 70 MW for every € 1 per MWh increase in the day-ahead wholesale price. Article 5 finds that demand is also price-responsive in the very short term: the demand for imbalance energy responds to the imbalance price—despite the legal obligation in Germany to minimize imbalances independent of prices.

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Metadaten
Document Type:Doctoral Thesis
Language:English
Author(s):Oliver Ruhnau
Advisor:Lion Hirth, Christoph Weber, Ottmar Edenhofer
Hertie Collections (Serial Number):Dissertations submitted to the Hertie School (06/2022)
Publication year:2022
Publishing Institution:Hertie School
Granting Institution:Hertie School
Thesis date:2022/06/13
Release Date:2022/06/21
Tag:Centre for Sustainability
Notes:
Publications:

Ruhnau, O., Bannik, S., Otten, S., Praktiknjo, A., Robinius, M., 2019. Direct or indirect electrification? A review of heat generation and road transport decarbonisation scenarios for Germany 2050. Energy 166, 989–999. https://doi.org/10.1016/j.energy.2018.10.114

Ruhnau, O., Hirth, L., Praktiknjo, A., 2020. Heating with wind: Economics of heat pumps and variable renewables. Energy Economics 104967. https://doi.org/10.1016/j.eneco.2020.104967 

Ruhnau, O., 2021. How flexible electricity demand stabilizes wind and solar market values: The case of hydrogen electrolyzers. Applied Energy 118194. https://doi.org/10.1016/j.apenergy.2021.118194

Hirth, L., Khanna, T., Ruhnau, O., 2022. The (very) short-term price elasticity of German electricity demand. Working Paper. http://hdl.handle.net/10419/249570 

Eicke, A., Ruhnau, O., Hirth, L., 2021. Electricity balancing as a market equilibrium: An instrument-based estimation of supply and demand for imbalance energy. Energy Economics 102, 105455. https://doi.org/10.1016/j.eneco.2021.105455
Notes:
Shelf mark: 2022D006 + 2022D006+1
Hertie School Research:Publications PhD Researchers
Licence of document (German):Metadaten / metadata
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