DSO Service Acquisition Interaction Comillas (2024)

Academic journal article analysing the three mechanisms DSOs use to acquire flexibility — network tariffs, flexible connection agreements (FCAs), and local markets (LFMs) — defining design dimensions for each and performing pairwise interaction analyses to identify synergies, conflicts, and context-dependent interactions. Part of the BeFlexible Horizon project.

Title: “Unlocking flexibility from third-party resources: decoding the interaction between mechanisms for acquiring distribution system operator services” Institution: IIT — Instituto de Investigación Tecnológica, ICAI School of Engineering, Comillas Pontifical University (Madrid) Funding: BeFlexible project (EU Horizon, grant no. 101075438)

Summary

Provides the most rigorous treatment available of the multi-mechanism nature of DSO service acquisition. Defines each mechanism via structured design dimensions grouped under meta-dimensions (locational, temporal, charges/product, and assets) — 8 dimensions for network tariffs, 12 for flexible connection agreements, 10 for local markets — then performs pairwise qualitative interaction analyses for all three mechanism pairs. Each cross-option is rated:

• Green: no loss of economic efficiency from simultaneous use
• Orange: potential loss of efficiency; requires contextual analysis
• Red: misalignment or infeasibility; simultaneous use causes definite efficiency loss
• Grey: irrelevant / not applicable

Core argument: the three mechanisms are designed as if the others don’t exist, but coexist in practice — creating double-signaling, double-charging/rewarding, and market power distortions. Co-design is the policy recommendation.

Design dimensions taxonomy (abbreviated)

Network tariffs

8 dimensions across four meta-dimensions: Charges (cost allocation method: average vs long-term incremental+residual; charging variable: fixed/used/contracted/physical capacity or energy), Locational (system-wide / zonal / nodal granularity), Temporal (yearly / seasonal / daily blocks / hourly charges; static vs dynamic vs ex-post price-setting periodicity; measurement granularity), Assets (customer differentiation: technology-agnostic or technology-specific; symmetry of offtake and injection charges).

Flexible connection agreements

12 dimensions across three meta-dimensions (Temporal, Product, Assets) — selected examples: Duration (temporary / permanent), Connection costs (deep / shallow), Activation of curtailment (emergency / maintenance / congestion), Pre-definition of curtailment (peak/off-peak / seasonality), Principle of access (pro-rata / LIFO / auction / congestion-created level), Compensation payments (fixed / set by LFM / LFM-indexed / none), Maximum curtailment (duration/capacity/energy/monetary limitation), Eligible customers (generation / demand / storage).

Local markets for DSO services

Ten dimensions: Flexibility need grid level (HV / MV / LV), Negotiation timeframe (long / short), Contract length (yearly to hourly), Temporal bid granularity (>1h / 1h / 30 min / 15 min), Response time (>1h / 30–60 min / 15–30 min / <15 min), Transactional object (capacity availability / energy activation), Power type (active / reactive), Direction (upward / downward), Symmetry (symmetric / asymmetric products), Source (generation / demand / storage).

Key interaction findings

Network tariffs ↔ Local markets

Green (compatible):

• LFM fills gaps where tariffs lack locational granularity (system-wide tariff + zonal/nodal LFM)
• LFM fills gaps where tariff temporal granularity is coarse (yearly tariff + hourly LFM)
• LFM can address reactive power needs that tariffs cannot signal

Orange (context-dependent):

• When both have granularity for the same period and area — double-signaling risk; customer is rewarded twice for same service
• When LFM temporal bid granularity is longer than tariff charge granularity — averaging effects create inefficient price signals
• Ex-post tariff pricing + day-ahead LFM requires careful design to avoid double compensation

Red (incompatible):

• Measurement granularity mismatch: if tariff meter reads at “daily blocks” but LFM requires hourly bids, technical infeasibility results

Network tariffs ↔ Flexible connection agreements

Green:

• Flat-rate tariffs coexist with most FCA designs without conflict
• When FCAs have no compensation payments, interaction with tariffs is generally conflict-free

Orange:

• Shallow connection cost recovery + socialized network tariff risks double-charging
• Congestion-triggered curtailment activation with tariff congestion signals risks double-rewarding
• Nodal tariff pricing + compensation payments in FCAs requires detailed conflict analysis

Flexible connection agreements ↔ Local markets

This pair has the most conflicts:

Red (definite infeasibility):

• Ex-post curtailment notification blocks LFM participation entirely — if customers don’t know about curtailment until after the fact, they cannot bid into day-ahead markets
• Emergency activation combined with contract lengths from daily to yearly makes the combination infeasible — no time for well-informed market decision-making

Orange:

• Intra-day curtailment notification overlapping with real-time LFM — double-rewarding risk if both activate simultaneously
• Temporary FCAs with shorter duration than LFM contract length → unfeasible combination when FCA expires during contract period
• Congestion-triggered activation + seasonal pre-definition of curtailment + yearly LFM contract length → timeline misalignments
• LIFO access principle creates queue uncertainty (customers’ ability to participate depends on queue position for curtailment orders) that complicates reliable LFM bidding — paper treats this as context-dependent, not a hard block

Green:

• Permanent FCAs (known timeline) coexist well with LFMs — customers can plan LFM participation around known curtailment windows
• No compensation payments in FCA → LFM interaction generally clean
• Same-type eligible customers in FCA and source/direction in LFM → compatible

General conclusion

When mechanisms send the same economic signal twice, customers face double charging or double rewarding, distorting efficient behaviour. Novel co-design practices are required to exploit combined efficiency. Orange cases require quantitative context-specific analysis — identified as future research.

Relevance to wiki

Directly enriches:

• Flexibility Market — mechanism co-design principle; three-way interaction map; FCA–LFM green/orange/red framework
• Flexible Connection Agreements — design dimensions for FCAs as a distinct concept page (new)
• Villkorade Avtal — Swedish villkorade avtal is the national implementation of FCAs; design dimensions apply
• Network Code on Demand Response — NC DR Art. 31 coordinates FCAs with LFMs; this paper’s interaction analysis applies directly to NC DR T&C design
• Congestion Management — three mechanisms as the DSO congestion toolkit; their co-design requirements
• Distribution System Operator — DSOs deploying all three simultaneously; co-design as regulatory challenge

Key Sweden observation: Sweden will face the FCA–LFM interaction issue acutely. Villkorade avtal use congestion-triggered activation (red cross-option with ex-post notification) and day-ahead LFMs coexist at the same DSOs — the paper’s findings are directly prescriptive for NC DR T&C design.

Data gaps

• Swedish-specific analysis: which cross-options apply in the villkorade avtal + SWITCH / Effekthandel Väst context?