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Institutions & Markets
Flexibility markets
Flexibility markets are institutional mechanisms through which the flexibility potential of distributed energy resources — generation, storage, and controllable loads — is procured and dispatched to support grid reliability, system utilisation, and renewable integration. This topic draws on a taxonomy developed by ISGAN Working Group 9 to identify and quantify flexibility potential across the four layers that determine what flexibility a resource can actually provide.
Flexibility markets can only work if flexibility potential is first quantified — and that depends on technology, communication infrastructure, location, and customer willingness in equal measure.
Why this matters
To make net-zero technically and economically feasible, the future power system will need to capture flexibility from various resources across various segments — generation, transmission, distribution, and end loads. The uptake of digitalisation, the adoption of distributed energy resources, and the push for cross-sectoral electrification is transforming traditional grid operation. Resources with flexibility potential in distribution grids can be a key solution to support grid reliability, resiliency, and optimised system utilisation via flexibility markets.
Current grids can evolve to include customers as a dynamic segment of the grid instead of a static end load. Grid operation in the future can leverage flexible resources connected to distribution grids as an additional product available to system operators in the transition to net zero.
Shared definitions
Flexibility, in the context of this topic, is defined as the ability of a power system to cope with variability and uncertainty in both generation and demand, while maintaining a satisfactory level of reliability at a reasonable cost, over different time horizons.1) A flexible resource can be any type of technology or process capable of adjusting its generation or consumption patterns to provide flexibility to the grid.
A taxonomy to quantify flexibility potential
As flexibility potential varies spatially and temporally, having a simplified methodology is critical to understanding the flexibility potential within different segments of the electric grid. ISGAN Annex 9 proposes four layers to assess the feasible flexibility potential of a resource:2)
Technology or Process represents the maximum amount of flexibility available as the full technical capability of the resource, with no considerations beyond the physical capabilities. This layer assesses the resource's maximum flexibility potential if all other factors are ignored.
Communication and Controls assesses the impact that control and communication systems have on the resource's flexibility potential. This layer considers how flexibility changes based on monitoring, automation, communication, and control infrastructure, as well as data transfer specifications. It plays a key role in determining whether flexibility is leveraged for planning or in real-time.
Location assesses the impact of geographic location on flexibility potential, including aspects of the interconnection (distribution or transmission connected, impact study outcomes), locational marginal price of providing a service, and climate conditions. Diversity of resources allows for different solutions to be available to support the grid in case some resources are unavailable to participate in flexibility events.
Customer Preferences and Market Economics considers customers' willingness and the market factors that would enable the resource to provision flexibility, including aspects of reliability, credibility, risk mitigation measures to avoid stranded assets, and market participation models.
Figure 1. Taxonomy proposed to quantify flexibility potential.
Source: Wadhera et al. (2023), ISGAN Working Group 9.3)
A detailed list of flexibility indicators is summarised in Table 1. These indicators can more concretely quantify and characterise flexibility potential. The list includes quantitative and qualitative indicators with inter-dependencies — not all indicators are necessary to compute the flexibility potential.
Table 1. Flexibility indicator examples within each taxonomy layer.
Source: Wadhera et al. (2023), compiled from literature and ISGAN Annex 9 expert input.4)
| Taxonomy layer | Flexibility indicators |
|---|---|
| Technology or Process | Controllability · Energy capacity · Energy loss per time · Ramp rate · Reactive power capacity · Real power capacity · Rebound · Time necessary to achieve maximum response · Type of flexible resource |
| Communication and Controls | Controller time lag · Coordination scheme · Data necessary to estimate flexibility · Interoperability standards · Response granularity · Time delay to observe response on network · Visibility of production/consumption |
| Location | Connection to grid · Cost to retrofit to provision flexibility · Implementation requirements · Regulatory framework |
| Customer Preferences and Market Economics | Access to markets · Cost to operate for flexibility services · Credibility · Customer behaviour · Frequency resource can be provisioned · Maximum response duration · Minimum time required to switch between states · Participation models in markets · Predictability · Resource consumption/production curve · Resource ownership type · Response reliability · Time necessary between events · Time required for resource to determine participation in event · Variability in consumption/production |
Perspectives
Actors and stakeholders
Technologies and infrastructure
Institutional structures
There is significant opportunity in designing markets to influence customer preferences. Leveraging a common framework such as the proposed taxonomy would help streamline how flexibility potential is calculated across a diverse set of resources. Infrastructure, communication systems, and control strategies can be re-evaluated to determine if additional flexibility can be extracted. Further investigation of interconnection requirements and regulations may help maximise flexibility potential from the location layer. Current grids can evolve to include customers as a dynamic segment rather than a static end load.
Distinctions and overlaps
Related topics
Topic notes
Content notes:
- This page draws primarily on ISGAN WG9 (Wadhera et al., 2023). Content has been reformatted for the wiki template with minimal changes to substance.
- The topic scope as currently structured focuses on quantifying flexibility potential. A broader treatment of flexibility markets, market design, procurement mechanisms, pricing, needs to be developed separately or integrated here. See Flexibility and Markets
- Figure 1 is currently 612×229px (16KB) — low resolution. Needs higher-resolution version.
- Table 1 indicator references from the original paper: indicators are drawn from Ma et al. (2013), Degefa et al. (2021), Ma et al. (2013 demand response), NERC (2017), Junker et al. (2018), Oldewurtel et al. (2013), Pratt & Taylor (Pacific Northwest National Laboratory), Balint & Kazmi (2019), Wang et al. (2018). Full reference list available in the source factsheet.