A real options assessment of operational flexibility in district energy systems

The aim of this paper, which is framed within the research activities of the EC FP7 IREEN Project, is to quantify the value of operational flexibility (with applications to planning) in ICT-enabled district energy systems. In particular, our work offers an integrated approach to the optimal operation and planning of flexible systems composed of high efficiency combined heat and power (CHP) and heat storage resources that can provide optimal demand response (DR) to real-time external signals (such as energy prices) and considering measurements and forecasts of different variables (weather, energy loads, and so on). The methodological approach, borrowed from finance theory, is based on a mixed operational and planning model using stochastic control techniques (for operational optimization, closely related to the pricing of swing options) which is in turn used for long-term (planning) real options evaluation. Numerical applications to exemplify the model developed refer to realistic UK applications. The model is a first step towards quantifying the operational and planning value of smart technologies and thus enabling the development of business cases for ICT-enabled energy efficient neighborhoods.