Investigating the impact of flexible demand on market-based generation investment planning

Abstract

Demand flexibility has attracted significant interest given its potential to address techno-economic challenges associated with the decarbonisation of electricity systems. However, previous work has investigated its long-term impacts through centralized generation planning models which do not reflect the current deregulated environment. At the same time, existing market-based generation planning models are inherently unable to capture the demand flexibility potential since they neglect time-coupling effects and system reserve requirements in their representation of the electricity market. This paper investigates the long-term impacts of demand flexibility in the deregulated environment, by proposing a time-coupling, bi-level optimization model of a self-interested generation company’s investment planning problem, which captures for the first time the energy shifting flexibility of the demand side and the operation of reserve markets with demand side participation. Case studies investigate different cases regarding the flexibility of the demand side and different market design options regarding the allocation of reserve payments. The obtained results demonstrate that, in contrast with previous centralised planning models, the proposed model can capture the dependency of generation investment decisions and the related impacts of demand flexibility on the electricity market design and the subsequent strategic response of the self-interested generation company.