Here at the ISGT conference, Prof. Anke Weidlich from Hochschule Offenburg correctly described four objectives of flexibility (one specific example is Demand Response):

• Minimization of power procurement costs
• Minimization of balancing power procurement costs
• Support for congestion management
• Pooling for participation in balancing markets (e.g. Virtual Power Plants (VPP)), thus achieving a shared economy of scale

There are other objectives I can think of:

• Power quality support (e.g. Voltage regulation)
• Provision of some certainty that black/brownouts are less likely through your existence (this objective is a current topic in Germany)

There might be even more.

Prof. Weidlich said that in the end, flexibility can only be used once. However, while there are a number of objectives, there are actually only two kind of actions when being flexible towards the power system: doing (generating/consuming) more than planned or less than previously announced. It is of course possible that objectives are complimentary - that one of the two actions can be of positive value in more than one of the above-mentioned objectives at the same time (e.g. a VPP which provides balancing power and thereby also helps with congestion management). Actually, installing the infrastructure for demand response will probably only pay off if all of these objectives are to some part realised.

The question is how to (explicitily) realise several objectives at the same time, given that any bidder can only offer flexibility once.

The challenge is to design mechanisms (e.g. market mechanisms) in which flexibility can actually be offered once, and then be allocated in order to work towards as many objectives as possible, at the same time. The alternative would be to have distinct markets for each of these objectives or at least the need to offer the flexibility in six distinct bids (well, technically, a VPP is simply an aggregator, so we are talking about possibly five markets for the usages listed above). A way to combine minimization of power procurement costs with congestion support is the system of Locational Marginal Pricing (LMP) practiced in the US. In my recent publications [1] [2] and [3], I proposed a combination of offering flexibility towards the first two objectives mentioned above. These mechanisms are already quite complex and it was hard work to design them. Adding more usages, e.g. a market mechanism that can can satisfy three objectives would be even harder. Especially in the light of a diverse actor/market landscape - the days where all objectives are handled by one central authority are long gone.

While I meet a lot of people who praise the many objectives of flexibility in power systems (also here at ISGT 2012), I have yet to come across significant appreciation for the challenge of combining them, though.

P.S. To avoid confusion: I would assume that Prof. Weidlich does acknowledge that market design challenge. She also acknowledges another important market design problem - the implementation of fairness in the tariff system of tomorrow (article in German).

[1] Nicolas Höning, J.A. La Poutré. Reduction of Market Power and Stabilisation of Outcomes in a Novel and Simplified Two-Settlement Electricity Market. Proceedings of IEEE/WIC/ACM International Conference on Intelligent Agent Technology 2012, 2012.
[2] Nicolas Höning, J.A. La Poutré. Flexible Consumers Reserving Electricity and Offering Profitable Downward Regulation. Proceedings of the Third IEEE PES Conference On Innovative Smart Grid Technologies 2012, 2012.
[3] Nicolas Höning, H. Noot, J.A. La Poutré. Integrating power and reserve trade in electricity networks. Proceedings of the International Joint Conference on Autonomous Agents and Multiagent Systems, Taipei, Taiwan, 2011.