page_title: Local flexibility markets
section_title: Background – Problems and Challenges (Northern Germany)
hierarchical_section_title: Local flexibility markets / Background – Problems and Challenges (Northern Germany)
caption_attribution_description: English: Local flexibility markets (Germany): Regional congestions due to high energy feed-in
context_page_description: Still in the stage of development, local flexibility markets for electricity will enable distributed energy resources to provide their flexibility in electricity demand or production/feed-in for the system operator or another counterparty at a local level. As there are different purposes for the use of this flexibility, there exist a variety of different market designs, comprising different actors and role models. Several local market models aim to efficiently tackle the widespread issue of grid congestion. This category of local markets is described further in this article.
context_section_description: The already rapid expansion of Renewable Energies accelerated in recent years. This is particularly the case in Germany, and even more so in its Northern regions. Nearly 50GW of installed wind capacity generated over a third of Germanys electricity demand in 2017. As an example, the Land of Schleswig-Holstein was able to cover 95% of its electricity demand by wind-generated energy (onshore).
  Slow grid expansion causes congestions
  For transportation to the consumer via the electricity grid, these strong amounts of energy require accordingly developed grid capacities. But while the expansion of wind energy happened very fast, mainly due to the EEG-incentives, the expansion of the grid happened much slower, since the regulation behind grid expansion requires extensive bureaucratic efforts. This fact causes a sophisticated problem: in times of strong wind energy generation, the amount of electricity is too high to get properly feed in and distributed through the grid. The limited grid capacities are simply not constructed to transport such high amounts of energy at once, the result is congestions:
  Solving congestions through feed-in management
  Today, system operators are given only one possible tool to encounter this problem and to secure grid stability: in times of strong wind, certain wind turbines are shut down. This is called Feed-In Management. But stopping wind turbines when their energy output is at its highest, comes at very high cost: both ecologically and economically:
  Ecologically, because for every curtailed kWh of wind energy, another power plant must be activated to offset the now missing volumes, since they have already been traded in the market. Because the supplementing power plant must be ramped up rather quickly and precisely, the first and only choice are combined cycle gas turbines (CCGTs). This practice of balancing energy generation by activating certain power plants on the one hand, and shutting down certain generation capacities on the other is called Redispatch.  
  Feed-in management comes at very high economic costs for two reasons: first, the redispatched CCGT must be remunerated. Second, the wind turbine operator or owner must also be remunerated (by EEG-law) for every kWh he would otherwise have produced. These costs are not paid directly by the system operator. The system operator is entitled to pass on the costs to the end consumer, meaning that at the end, society pays. Annual costs for feed-in management in Germany were €373m in 2016, €550m in 2017, and are likely to increase up to €5bn until 2025. 
  New solution: Local Flexibility Markets 
  Local Flexibility Markets provide system operators with a new possibility instead of feed-in management. This new kind of market makes it possible to use local flexibility potential (provided by distributed energy resources (short DER) which can adapt their electricity demand or production, e.g. storage providers, electric vehicles, demand response and sector coupling facilities), meaning an increase/decrease in consumption/production at specific points in the grid. This means that higher electricity volumes can be used (or less volumes produced) locally, hence the amount of energy that needs to be transported over long distances via the grid is reduced. Regional trading of electricity enables the system operator to optimize local electricity flows in the grid. The condition for this is an examination of each DER, where the market operator assesses the physical impact of the DER on the grid, based on the location and the provided flexibility capacity (for example, the impact on the grid of a factory located directly next to a wind park is higher compared to a similar factory with a distance of several kilometers to the park). Regional pricing of electricity creates a financial incentive for flexibility providers to adapt their electricity demand or consumption to the current situation in the grid, which alleviates congestions in a market based manner.
caption: Regional Congestions due to high energy feed-in
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