Evaluating long-term profile of demand response under different market designs: A comparison of scarcity pricing and capacity auction

Zhenyu Huang, Youbo Liu, Kecun Li, Jichun Liu, Hongjun Gao, Gao Qiu, Xiaodong Shen and Junyong Liu

Energy, 2023, vol. 282, issue C

Abstract: Demand response (DR) is widely acknowledged as a promising solution to maintain the capacity adequacy of the power system. In China, DR is now shifting from government pricing to market-oriented pricing. However, the market pricing mechanism to be adopted is still inconclusive and the long-term influence of different pricing mechanisms on incentivizing DR remains unknown. Moreover, the market contains multiple participants, various strategic behaviors, and non-linear clearing procedures while traditional optimization models cannot capture the complex dynamics. This paper adopts a system dynamic (SD) method to evaluate the long-term profile of DR under different market designs. Firstly, an investment decision model of generation companies is formulated to simulate the growth tendency of capacity supply in a long-term period. Secondly, in the context of unmatured marketization, the growth tendency of DR and retail market users are modeled by Bass diffusion. Finally, scarcity pricing and capacity auction are applied to investigate the incentive influence of different market designs on DR. Through the simulation to 2035, the results show that compared with the energy-only market, scarcity pricing, and capacity auction can raise the capacity of DR from 3.12% to 7.58% and 9.21%, respectively.

Keywords: Demand response; Scarcity pricing; Capacity auction; System dynamics (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:282:y:2023:i:c:s0360544223014901

DOI: 10.1016/j.energy.2023.128096

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