New Demand Response framework and its applications for electricity markets

Abstract

Demand Response (DR) refers to modifications to electricity usage by consumers, which are derived by changes in the price of electricity or incentive payments offered to induce lower electricity use at specific periods. DR is a useful tool for not only electricity market players on both the supply and demand sides, but also Independent System Operators (ISO). On the supply side, DR is of particular interest for wind power producers, where they can use DR to alleviate their production intermittency as well as real-time market price variations. In addition, electricity retailers on the demand side may use DR to procure part of their clients’ energy and consequently cope with pool market price fluctuations. Furthermore, ISOs are faced with new challenges as the integration of renewable resources increases, and therefore may seek DR as a reserve provider. Despite the clear understanding of DR benefits for the above market players, they have practically low involvement in DR programs. They instead prefer to buy DR products from a third-party company. Such a company is called a DR aggregator, which is responsible for carrying out DR programs on consumers and selling the outcome to purchasers. To this end, an appropriate DR framework is needed to provide mutually attractive DR deals between the aggregator and DR purchasers. This research aims at proposing a new DR framework through which DR is traded as a public good between a DR aggregator and a DR purchaser. Various bilateral DR contracts with unique features are proposed and formulated for this purpose. The proposed DR framework is then applied to an offering strategy by wind power producers. Two well-known markets, i.e. the Australian National Electricity Market (NEM) and the Nordic market, are studied and proper wind offering plans in these markets are formulated. In addition, the behaviour of DR aggregators in power offering by a wind power producer is modelled. A bilevel problem is formulated in which the upper level refers to the wind power producer and the lower level models the DR aggregator behaviour. Furthermore, DR application by a strategic wind power producer, being able to alter market prices, is evaluated. To this end, a bilevel model is formulated in which the leader is the strategic wind power producer and followers are the market clearing mechanism and DR aggregator behaviour, respectively. The proposed DR framework is also applied to an energy procurement problem of electricity retailers. A cost minimization problem is modelled through which a retailer can purchase DR in addition to the commonly-used pool market and forward contracts. Lastly, the application of DR in an electricity market integrating high penetration of wind and PV resources is studied. A market dispatch is formulated in which an ISO allows DR aggregators to participate in the reserve market in order to cope with renewable power production uncertainty. The above problems are stochastically formulated to address the uncertainty of market prices as well as wind and PV power production. In addition, risk modelling is carried out using Conditional Value at Risk (CVaR). Each problem is rendered as a linear programming approach to be solved using General Algebraic Modelling System (GAMS), which is a commercially available optimization tool.