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Integration of Demand Response in Electricity Market Capacity Mechanisms

Xavier Lambin

Utilities Policy, 2020, vol. 64, issue C

Abstract: Ensuring that the power system meets demand peaks is a key challenge of liberalized markets. On the supply side, capacity can be supported through a Capacity Remuneration Mechanism (CRM). On the demand side, Demand Response (DR) technologies can be deployed. We find that while all traditional generation should receive the same payment, capacity payments for DR technologies should gradually decrease based on operators’ position in the load-shedding order. We observe that all CRM schemes currently implemented provide inadequate incentives to non-price responsive DR and propose to adjust payments to DR units as a function of their expected activation periods.

Keywords: Demand response; Capacity remuneration mechanisms; Power market design (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jup.2020.101033

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