IEEE Power & Energy Magazine - March/April 2021 - 51

cases where much-needed flexibility is too expensive due to
tariff costs.
It must be mentioned that ToU tariffs are calculated by
the DSO to induce the necessary motivation for consumers to
shift consumption away from peak hours. This DSO-driven
calculation does not consider the effect of ToU tariffs on the
use of flexibility, including the aggregators' economic performance in the wholesale markets, which may deteriorate.
The appropriate balance between the financial burden on
the various uses of flexibility in the wholesale markets and
the avoidance of distribution network operational problems
via network pricing can be more easily achieved through a
coherent market-based solution.
The disadvantages of ToU tariffs can be partially alleviated by the use of dynamic tariffs, which are calculated
at finer time resolutions, e.g., daily, and can be much more
granular geographically. Thus, they can be more effective in
preventing congestion at the distribution level. Their implementation is significantly more complicated than simple
ToU tariffs because advanced techniques are required to
calculate their optimal values. Similar to ToU tariffs, this
mechanism cannot avoid the possible congestion at the distribution level that occurs due to the activation of balancing
or ancillary services, and it is very challenging to implement
on a feeder level.
It should be noted that the effectiveness of dynamic tariffs
on congestion management can be significantly improved by
increasing the geographical and temporal granularity, e.g.,
by changing those tariffs hourly and per feeder. However,
this comes at the expense of technical complexity and regulatory obstacles (e.g., fairness).
Another relevant mechanism that has been proposed
is a finer geographical granularity of power markets. This
could be done by moving from a zonal pricing system
(Denmark has two bidding zones) to a nodal pricing system.
Such a change can be effective in alleviating transmissionlevel congestion. However, nodal pricing would need to be

applied on a distribution or feeder level to be effective in
alleviating congestion at those voltage levels. This change
would require a complete restructuring of power markets
and system operation, whereas the implementation of
nodal pricing on a feeder level would add immense complexity. Nodal pricing is not compliant with the current
legislation and regulations that govern the operation of
DSOs in Denmark.
Bilateral agreements are " limited grid access " agreements between system operators and consumers. These
agreements allow the DSO to decrease the load of a consumer in the event or prospect of congestion by granting
the DSO direct controllability over the flexible asset. In
exchange, consumers receive compensation in the form of
reduced or waived connection fees. Such agreements have
been established in Denmark for industrial customers, for
instance, large electric boilers where both the connection
fees and the impact on the distribution network are substantial. The new initiatives, " limited grid access " and " temporary limited grid access, " aim at introducing reduced tariffs
for customers connected at the transmission network who
agree to act as interruptible loads.
Bilateral agreements are effective in alleviating congestion at both transmission and distribution levels, have relatively low regulatory or implementation barriers, and are not
difficult to be integrated into a power system. However, such
a solution has scalability limitations. DSO bilateral agreements would be impractical at an individual DER level due
to complexity, high costs, privacy, and user comfort issues.
For these reasons, DSOs are directed toward market-based
solutions through the EU Clean Energy Package, which
states that " DSOs shall procure flexibility services in accordance with transparent, nondiscriminatory and marketbased procedures. "
Market-based solutions are sought after for congestion
alleviation at a transmission level as well, mainly due to the
high renewable power infeed, as described next. Bilateral

table 1. An assessment of the different mechanisms for unlocking flexibility
in renewables-based power systems with flexible demand.
Effectiveness on
Congestion Management

Ease of
Implementation

Market
Compatibility

Impact on System
Balancing

ToU Tariffs

Low (T, D, F)

High (T, D, F)

Negative

Dynamic Tariffs

Low (T)
Medium (D, F)

Medium (T, D)
Low (F)

Medium (T, D, F)

Negative

Finer Geographical
Granularity

High (T, D, F)

Medium (T)
Low (D, F)

Neutral

Bilateral Agreements

High (T, D, F)

Medium (T, D)
Low (F)

High (T, D, F)

Negative

Local Flexibility
Markets

High (T, D, F)

Medium (T, D, F)

High (T, D, F)

Neutral

Mechanism

Criterion

Key: T: transmission; D: distribution; F: feeder.
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IEEE Power & Energy Magazine - March/April 2021

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