The value of aggregators in electricity systems

Abstract

Distributed energy resources ("DERs") are being adopted throughout the world. These technologies have the potential to not only deliver the valuable electricity services that have traditionally been provided by centralized generating units, but also new services enabled by their distributed nature. Aggregators are being lauded as critical in enabling DERs to provide these valuable electricity services at scale; in this light, regulatory and policy bodies are discussing the role of aggregators and even the need to support their market entry. In order to shed light on this debate, this paper reflects on the economic fundamentals of aggregators. We perform a critical review of the potential value of aggregators, defining the factors that is determining and will determine their role in power systems under different technological and regulatory scenarios. We identify three categories of value that aggregators may create: fundamental, transitory, and opportunistic. Fundamental value (e.g. economies of scale) is intrinsic to aggregation and is independent of the market or regulatory context. Transitory value may be diminished by technological or regulatory advances; for example, energy boxes that automate market interaction could mitigate the value in aggregators doing so. Opportunistic value emerges as a result of regulatory or market design flaws and may endanger the economic efficiency of the power system.