Toward Real Options Analysis of IS-Enabled Flexibility in Electricity Demand

As the transition to wind and solar progresses, the integration of renewable energy sources makes electricity production increasingly fluctuating, also causing volatility in electricity prices on energy markets. In order to guarantee power grid stability, utilities need to balance volatile supply through shifting demand. This measure of demand side management creates flexibility, being enabled as the integration of information and communication technology, e.g. smart meters and load control switches, in the power grid grows. The flexibility of deferring consumption to times of lower demand or higher supply bears an economic value which can be quantified by recurring to electricity market prices. Our kernel theory in terms of design science research, real options theory is the appropriate approach for quantification under uncertainty. It provides for the assessment of investment potential in information systems for load control. Addressing the prerequisite, we develop a stochastic process which realistically replicates electricity spot price development. In further research, we will thereby assess the value of IS-enabled flexibility in electricity demand.