DECISION FLEXIBILITY VS. INFORMATION ACCURACY IN ENERGY-INTENSIVE BUSINESSES

Abstract

Demand-side management and demand response are integral building blocks for environmental sustainability. Exchange-based power pricing serves as an economic mechanism to set incentives to shift demand to periods where prices are low. Low power prices also serve as an indicator for green(er) power, since high feed-ins from variable renewable sources push the electricity price downward. Thus, businesses contribute not only to economic but also environmental sustainability minimizing electricity costs. Hence, especially energy-intensive businesses can become greener and more competitive by integrating volatile electricity prices into their production planning activities. In this paper, we demonstrate that the length of the planning horizons is key to achieve more sustainable outcomes due to a trade-off between decision flexibility and information accuracy. Decision flexibility – i.e. the capability to shift processes – increases with longer planning horizons. Information accuracy – i.e. price accuracy – increases with shorter planning horizons. Information Systems (IS) can help to balance this trade-off. We follow a data-driven approach and derive both actual and predicted electricity spot prices from historic electricity intraday market data in Germany. We find that decision flexibility and information accuracy affect the planning horizon as conceived. First results indicate that more sustainable outcomes are achieved with longer planning horizons