Demand response mechanisms: A new debate on internalizing power generation sector negative technical spillovers

Sarineh Hacopian Dolatabadi, Mohammad Amin Latify, Hamidreza Karshenas and Alimorad Sharifi

Energy, 2024, vol. 301, issue C

Abstract: The presence of technical and operational constraints within the power generation sector gives rise to negative externalities, resulting in spillover effects that can significantly impact the economic efficiency of power markets. This article endeavors to address these challenges by focusing on the demand side of power systems. Within the article, a demand response-based approach is presented as a means to internalize the negative technical externalities spillovers originating from power plants in day-ahead power markets. This approach involves the responsive demand generating a new service that opens up opportunities for energy interchange within the power market. To effectively internalize these spillovers, the introduced service incorporates both quantity and price adjustments. A discriminatory pricing mechanism for this service is proposed, accompanied by a bi-level optimization problem aimed at determining the elastic responsive demand fraction necessary to deliver the service. Utilizing the proposed scheme facilitates attaining the first-best optimal market solution by alleviating negative spillovers inherent in sub-optimal second-best solutions arising from operational constraints in power plants. Numerical results presented in the article serve to underscore the efficacy of the proposed method, demonstrating its ability to function seamlessly and contribute to the optimization of power market outcomes.

Keywords: Demand response; Discriminatory service pricing; Externalities internalization; Power market; Service (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:301:y:2024:i:c:s0360544224014397

DOI: 10.1016/j.energy.2024.131666

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