Potential of Hourly Settlements in the Residential Sector of the Swedish Electricity Market—Estimations of Risk Reduction and Economic Result

Abstract

Increased demand response is essential in order to boost the effectiveness of the Swedish power market. The all-embracing installation of automatic meter reading systems enables power suppliers to introduce hourly settlements in the residential sector. The aim of the study has been to assess the impact of electricity retailers' physical and financial risk in customer segments with different heating systems as well as to estimate the potential of the electricity contract “Fixed price with the right to return” in terms of economic consequences and risk management. To that end, computer simulations using empirical data have been employed. The results show that the physical price and volume risk, which constitute the greatest risk of suppliers, are most severe in households whose main heating system consists of a geothermal heat pump and less serious in households that are less dependent on electricity for heating. Hourly settlements in the residential electricity market have proven to be advantageous to retailers from both an economic and risk reducing point of view and provide a superior opportunity for customers, and those with an electric heating installation in particular, to lower their electricity expenses substantially.

Keywords:

• Demand response
• Hourly settlements
• Power trading
• Price risk
• Residential electricity market
• Risk assessment
• Volume risk

ACKNOWLEDGMENT

The research presented in this article was financed by the Swedish Energy Agency.

Notes

¹The physical market at Nord Pool accounts for more than 60% of the total monetary value of the power consumption in the Nordic countries.

²Translates as “Fixed price with the right to return.”

³Applies to traditional electricity contracts based on consumed energy.