Reliability-based Incentive Mechanism for Demand Response in Electric Power Market

Abstract

DR(Demand response) is a rising issue in electricity power market by reducing load quantity instead of increasing generation for balancing demand and supply. DR resources are regarded as an extra tool of balancing supply and demand in emergency condition. DR resources usage in normal condition is also possible and used for the purpose of reliability and economic effect. For determining incentive for DR resources in PJM, fixed incentive level was used to reward the effect of market price reduction by DR program. However, since the fixed level of incentive is obtained by historical data, it cannot reflect the continuous change of market well. Furthermore, traditional method only concentrates to economic effect and it hardly concerns about the effect of preventing price variation by DR resources. In this paper, method of evaluating the market price reduction and prevention of price variation by DR is described under reliability considered situation. New mechanism for determining extra incentive is provided. From comparing the situation that DR is not implemented and the situation DR is implemented, novel mechanism can give more rewards to participants who contribute the stabilization of price and the reduction of load. Reward is exponentially increased as the DR resource stabilizes the price variation. On the other hand, reward is exponentially decreased as the DR resource increases price variation. Several cases are showed for checking effects and calculating the extra incentive.