Long-run cost-benefit analysis of demand response for the European System

The operation of power systems faces great challenges as the penetration of variable renewable energy keeps increasing rapidly. Meanwhile, the electrification of transportation and heating systems can increase future peak demand. As a result, grid infrastructures will need to be reinforced, including construction of combustion turbines in order to meet peak demand and offer flexibility to the system, and investment in transmission and distribution lines. However, there exists massive flexibility potential on the demand side, which can be exploited in order to reduce or postpone the upgrade of current power systems. Meanwhile, investment in smart meters is necessary to enable demand response. In this paper, we build a capacity expansion model for the European system and carry out a cost-benefit analysis considering the scenario of year 2050. We identify substantial flexibility potential in the residential sector and we find that the investment cost in smart meters can be justified from the perspective of energy suppliers.