Market Design for Rapid Demand Response - The Case of Kenya

Kurt Nielsen () and Tseganesh Wubale Tamirat ()
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Kurt Nielsen: Department of Food and Resource Economics, University of Copenhagen
Tseganesh Wubale Tamirat: Department of Food and Resource Economics, University of Copenhagen

No 05_2014, MSAP Working Paper Series from University of Copenhagen, Department of Food and Resource Economics

Abstract: We suggest a market design for rapid demand response in electricity markets. The solution consists of remotely controlled switches, meters, forecasting models as well as a flexible auction market to set prices and select endusers job by job. The auction market motivates truth-telling and makes it simple to involve the endusers in advance and to activate demand response immediately. The collective solution is analyzed and economic simulations are conducted for the case of Kenya. Kenya has been su ering from unreliable electricity supply for many years and companies and households have learned to adjust by investments in backup generators. We focus on turning the many private backup generators into a demand response system. The economic simulation focuses on possible distortion introduced by various ways of splitting the generated surplus from the demand response system. An auction run instantly as the Transmission System Operator (TSO) requests demand response and the winning endusers are disconnected immediately if the TSO accepts the result of the auction. The endusers are compensated with a uniform auction price job by job and the Aggregator receives part of the surplus. The simulation captures the nature of the demand response system and reveals that a simple markup contract between the Aggregator and the TSO is sufficiently flexible and little distorting. The simulation also provide a the less intuitive result, that the auction motivates the TSO to o er a high markup contract to the Aggregator to motivate a large pool of demand response. We discuss how this may motivate the alternative owner structure where the Aggregator is a cooperative owned by the endusers themselves.

Keywords: : Demand response; auction market; contracts; simulation (search for similar items in EconPapers)
Pages: 21 pages
Date: 2014-08
New Economics Papers: this item is included in nep-afr, nep-cmp and nep-ger
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