Demand Response in Electricity Markets: An Overview and a Study of the Price Effect on the Iberian Daily Market
The electricity industry is undergoing a deep transformation as Europe moves towards a greener, healthier future the growth of renewable generation has surpassed all expectations and demand response (DR) has emerged as a key element of market design. Most European countries have already opened their markets to the participation of demand response and, over the long term, DR will probably reach its full potential as the entire range of DR programs will be made available to retail customers. To date, however, progress has been only gradual. There is currently a need to understand and quantify the major impacts and benefits of DR, to facilitate an effective implementation of DR programs. Accordingly, this chapter investigates the impact of different levels of DR on the Iberian market prices, during the period 2014 2017, and analyzes the potential benefits for market participants and retail customers. The results generated by an agent based simulation tool, called MATREM, are striking. In the year 2017, for instance, a modest load reduction of 5% when prices rose above 80 EUR/MWh yielded the (very large) benefit of 76.62 million EUR. Also, the same decrease in load when prices exceeded 90 EUR/MWh provided the (still large) benefit of 39.05 million EUR. The chapter concludes with specific recommendations for consideration by state institutions, system operators, electric utilities and other market participants to foster demand response in Portugal through both incentive based and price based programs.