The electricity market is facing major challenges. For example, local power shortages are becoming an increasingly serious problem. However, thinking that a more active and flexible consumption of electricity among households will help remedy this situation is naive, according to economist Mattias Vesterberg in a new SNS report. In order for households to have an impact in this regard, they need greater financial incentives.
During the summer, the situation in the electricity market has been quite strained, not least in southern Sweden. The reason for this is that electricity production takes place in the north and that the capacity to transfer electricity to southern Sweden is too limited, at the same time as this is where the demand for electricity is high. There are further challenges as well, including electrification of industry and transports, and how to secure electricity supply when a larger share of electricity is produced using solar and wind power which cannot be planned.
Many have argued that one way to address these challenges in the electricity market is to incentivise households to adjust their consumption to the availability of electricity, so-called demand flexibility. In, for example, the memo “Lokaliseringssignaler i elnätstariffer” published last spring, the Swedish Energy Markets Inspectorate argues that one way of handling limited grid capacity in both the short and long term is to utilise household demand flexibility. The idea is that households actively adjust their consumption to prices that reflects the current availability of electricity. This “relieves pressure” during the hours when demand is typically the highest and, subsequently, also the price. But Mattias Vesterberg is sceptical.
“My research and that of others suggest that expectations about demand flexibility rests on naive assumptions. Many households are not interested in changing their habits in the manner necessary for demand flexibility to become a reality in the electricity market”, says Mattias Vesterberg, researcher in economics at Umeå University.
Altering the timing of your electricity consumption means that you have to adjust when, for example, you increase the temperature in your home, cook, do laundry or charge your electric car. This, Vesterberg argues, is complicated and somewhat of a nuisance, something frequently forgotten in the discussion on demand flexibility.
If demand flexibility is to be a key factor, greater variation in price is required, or that the price on technical equipment for households – such as equipment automatically adjusting electricity consumption to prices and thus the availability of electricity – drops significantly.
“Technology and equipment for automated demand response have the potential of facilitating changes in electricity consumption. For the average household to invest in such equipment, however, the savings need to be much more substantial. Unfortunately, this is not the case on the market today”, says Mattias Vesterberg.
This report is published in the framework of the SNS research project Sustainable Urban and Rural Planning.