Virtual Power Plant Operation with Solar Power Forecast Errors and Demand Response

46 Pages Posted: 27 Nov 2018

See all articles by Hannu Huuki

Hannu Huuki

University of Oulu - Department of Economics, Accounting and Finance; Government of the Republic of Finland - Finnish Environment Institute

Santtu Karhinen

Government of the Republic of Finland - Finnish Environment Institute

Herman Böök

Government of the Republic of Finland - Finnish Meteorological Institute

Anders V. Lindfors

Government of the Republic of Finland - Finnish Meteorological Institute

Maria Kopsakangas-Savolainen

Finnish Environment Institute; University of Oulu - Department of Economics, Accounting and Finance

Rauli Svento

University of Oulu - Department of Economics, Accounting and Finance

Date Written: November 2, 2018

Abstract

Intermittent renewable energy production, determined by weather conditions, is increasing in power markets. Their efficient integration calls for flexible participants in smart power grids. It has been acknowledged that a huge underutilized flexibility resource lies on the electricity consumer-side. The activation of this demand flexibility is, however, a big challenge. Despite the recently risen interest towards demand flexibility, there is a gap in the literature investigating the incentives for consumers to offer their flexibility to power markets. It has been proposed that there needs to be a third-party operator aggregating and controlling this flexibility. In this paper we examine a concept of virtual power plant, which simultaneously optimizes the response of controllable electric hot water heaters to solar power forecast error imbalances. Uncertainty is included in the optimization in terms of solar power day-ahead forecast errors and balancing power market conditions. We show that the virtual power plant can add value from optimizing the combination of these resources. The results indicate that while the total profits are increasing, the marginal revenues are diminishing with the number of participating households. From a policy perspective, our results imply that market efficiency can be increased by allowing the aggregated resources to participate more freely in the markets.

Keywords: virtual power plant, solar power forecast error, demand response, balancing market

JEL Classification: Q41, C61

Suggested Citation

Huuki, Hannu and Karhinen, Santtu and Böök, Herman and Lindfors, Anders V. and Kopsakangas-Savolainen, Maria and Svento, Rauli, Virtual Power Plant Operation with Solar Power Forecast Errors and Demand Response (November 2, 2018). Available at SSRN: https://ssrn.com/abstract=3277354 or http://dx.doi.org/10.2139/ssrn.3277354

Hannu Huuki (Contact Author)

University of Oulu - Department of Economics, Accounting and Finance ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

Government of the Republic of Finland - Finnish Environment Institute ( email )

00260 Helsinki
Finland

Santtu Karhinen

Government of the Republic of Finland - Finnish Environment Institute ( email )

00260 Helsinki
Finland

Herman Böök

Government of the Republic of Finland - Finnish Meteorological Institute ( email )

P.O.Box 503
FIN-00101 Helsinki
Finland

Anders V. Lindfors

Government of the Republic of Finland - Finnish Meteorological Institute ( email )

P.O.Box 503
FIN-00101 Helsinki
Finland

Maria Kopsakangas-Savolainen

Finnish Environment Institute ( email )

PO Box 413
Oulu, 90014
Finland

University of Oulu - Department of Economics, Accounting and Finance ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

Rauli Svento

University of Oulu - Department of Economics, Accounting and Finance ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

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