Risk and Reward: Portfolio-based Dynamic Electricity Tariffs for Leveraging Demand-side Flexibility

Abstract

Electricity markets still struggle to leverage the flexibility potential of the demand side. Residential customers are either offered fixed tariffs, which do not provide incentives for shifting loads, or fully variable real-time tariffs, which expose them to strong price risks. We present a novel portfolio tariff that balances risk and reward. To assess the effectiveness of this tariff, we conducted simulations using real-world EPEX spot price data, evaluating its impact on different energy services with varying degrees of flexibility, including interruptible and non-interruptible loads. The simulations, driven by model predictive control, allow us to analyze load flexibility, tariff costs, and the risks associated with payment fluctuations. Our findings reveal that even with a small share of variable components in the portfolio tariff, significant flexibility can be unlocked. Customers benefit by substantially reducing their costs while being able to choose the level of risk they are comfortable with. Meanwhile, utility companies can better balance supply and demand and attract a new segment of more flexible customers.