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Which electricity market design to encourage the development of demand response?

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  • Vincent Rious, Fabien Roques and Yannick Perez
Abstract
Demand response is a cornerstone problem in electricity markets under climate change constraint. Most liberalized electricity markets have a poor track record at encouraging the deployment of smart meters and the development of demand response. In Europe, different models are considered for demand response, from a development under a regulated regime to a development under competitive perspectives. In this paper, focusing on demand response and smart metering for mid-size and small consumers, we investigate which types of market signals should be sent to demand manager to see demand response emerge as a competitive activity. Using data from the French power system over the last 8 Creation-Dates, we compare the possible market design options to allow demand response to develop. Our simulations demonstrate that with the current market rules, demand response is not a profitable activity in the French electricity industry. Introducing a reserve and/or capacity remuneration could bring additional revenues to demand response providers and improve incentives to put in place demand response programs in a market environment.

Suggested Citation

  • Vincent Rious, Fabien Roques and Yannick Perez, 2012. "Which electricity market design to encourage the development of demand response?," RSCAS Working Papers 2012/12, European University Institute.
    • Handle: RePEc:rsc:rsceui:2012/12
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    References listed on IDEAS

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    Cited by:

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    2. Claire Bergaentzlé & Cédric Clastres & Haikel Khalfallah, 2014. "Demand-side management and European environmental and energy goals: an optimal complementary approach," Post-Print halshs-00928678, HAL.
    3. Palm, J. & Kojonsaari, A.-R. & Öhrlund, I. & Fowler, N. & Bartusch, C., 2023. "Drivers and barriers to participation in Sweden's local flexibility markets for electricity," Utilities Policy, Elsevier, vol. 82(C).
    4. Després, Jacques & Mima, Silvana & Kitous, Alban & Criqui, Patrick & Hadjsaid, Nouredine & Noirot, Isabelle, 2017. "Storage as a flexibility option in power systems with high shares of variable renewable energy sources: a POLES-based analysis," Energy Economics, Elsevier, vol. 64(C), pages 638-650.
    5. Claire Bergaentzlé & Cédric Clastres, 2013. "Demand side management in an integrated electricity market: what are the impacts on generation and environmental concerns ?," Post-Print halshs-00839116, HAL.
    6. Reihani, Ehsan & Motalleb, Mahdi & Thornton, Matsu & Ghorbani, Reza, 2016. "A novel approach using flexible scheduling and aggregation to optimize demand response in the developing interactive grid market architecture," Applied Energy, Elsevier, vol. 183(C), pages 445-455.
    7. Zeng, Bo & Wu, Geng & Wang, Jianhui & Zhang, Jianhua & Zeng, Ming, 2017. "Impact of behavior-driven demand response on supply adequacy in smart distribution systems," Applied Energy, Elsevier, vol. 202(C), pages 125-137.
    8. Claire Bergaentzlé & Cédric Clastres, 2013. "Tarifications dynamiques et efficacité énergétique : l'apport des Smart Grids," Post-Print halshs-00822731, HAL.
    9. Cédric Clastres & Olivier Rebenaque & Patrick Jochem, 2020. "Provision of Demand Response from the prosumers in multiple markets," Working Papers hal-03167446, HAL.
    10. Bert Willems & Juulia Zhou, 2020. "The Clean Energy Package and Demand Response: Setting Correct Incentives," Energies, MDPI, vol. 13(21), pages 1-19, October.
    11. Michaelis, Anne & Hanny, Lisa & Körner, Marc-Fabian & Strüker, Jens & Weibelzahl, Martin, 2024. "Consumer-centric electricity markets: Six design principles," Renewable and Sustainable Energy Reviews, Elsevier, vol. 191(C).
    12. Voulis, Nina & van Etten, Max J.J. & Chappin, Émile J.L. & Warnier, Martijn & Brazier, Frances M.T., 2019. "Rethinking European energy taxation to incentivise consumer demand response participation," Energy Policy, Elsevier, vol. 124(C), pages 156-168.
    13. Clastres, Cédric & Khalfallah, Haikel, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Energy Economics, Elsevier, vol. 98(C).
    14. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2018. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Working Paper Series in Production and Energy 27, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    15. Barbero, Mattia & Corchero, Cristina & Canals Casals, Lluc & Igualada, Lucia & Heredia, F.-Javier, 2020. "Critical evaluation of European balancing markets to enable the participation of Demand Aggregators," Applied Energy, Elsevier, vol. 264(C).
    16. Bergaentzlé, Claire & Clastres, Cédric & Khalfallah, Haikel, 2014. "Demand-side management and European environmental and energy goals: An optimal complementary approach," Energy Policy, Elsevier, vol. 67(C), pages 858-869.
    17. Lambin, Xavier, 2020. "Integration of Demand Response in Electricity Market Capacity Mechanisms," Utilities Policy, Elsevier, vol. 64(C).
    18. Cédric Clastres & Haikel Khalfallah, 2020. "Retailers' strategies facing demand response and markets interactions," Working Papers hal-03167543, HAL.
    19. Mkireb, Chouaïb & Dembélé, Abel & Jouglet, Antoine & Denoeux, Thierry, 2019. "Robust Optimization of Demand Response Power Bids for Drinking Water Systems," Applied Energy, Elsevier, vol. 238(C), pages 1036-1047.
    20. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2019. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Energy Economics, Elsevier, vol. 80(C), pages 1059-1078.
    21. Pedro Faria & João Spínola & Zita Vale, 2018. "Reschedule of Distributed Energy Resources by an Aggregator for Market Participation," Energies, MDPI, vol. 11(4), pages 1-15, March.

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    Keywords

    Market Design; Demand Response; Capacity Market;
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