Analysing long-term interactions between demand response and different electricity markets using a stochastic market equilibrium model

Abstract

Demand response (DR) as a source of flexibility is considered to become increasingly important in power systems based on renewable energy sources (RES), which are characterised by increasingly distributed, volatile and uncertain supply. We explore the impact of DR on generator investments and profits from different markets, on costs for different consumers from different markets, and on CO2 emissions under consideration of the uncertainties associated with the RES generation. We develop a novel stochastic mixed complementarity model in this paper that considers both operational and investment decisions, that considers interactions between an energy market, a capacity market and a feed-in premium and that takes into account the stochasticity of electricity generation by RES. We find that DR particularly increases renewable generator profits. While DR may reduce consumer costs from the energy market, these savings may be (over)compensated by increasing costs from the capacity market and the feed-in premium. This result highlights the importance of considering such interactions between different markets.