The Cost Reduction Potential of Demand Response in Balancing Markets from a System Perspective

Wessel Bakker () and Ioannis Lampropoulos ()
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Wessel Bakker: Energy and Resources Group, Copernicus Institute of Sustainable Development, Utrecht University, Vening Meinesz Building, Princetonlaan 8a, 3584 CB Utrecht, The Netherlands
Ioannis Lampropoulos: Energy and Resources Group, Copernicus Institute of Sustainable Development, Utrecht University, Vening Meinesz Building, Princetonlaan 8a, 3584 CB Utrecht, The Netherlands

Energies, 2024, vol. 17, issue 12, 1-22

Abstract: Demand response (DR) can potentially provide a cost-efficient alternative for balancing the electricity grid by replacing fossil-fuelled power plants for the provision of flexible capacity. This paper aims to quantify the cost reduction potential of DR from a system perspective. Historical data of balancing markets are studied using regression and average bid price analysis to quantify the effect of the participation of DR resources on the price of flexible capacity for the provision of balancing reserves by focusing on two case studies in Great Britain and the Netherlands. It is estimated that DR bids are, on average, 35% lower than the market average. The regression analysis concluded that 1% higher participation of DR in balancing markets leads, on average, to a 2.7% lower prices for flexible capacity. The results verify the hypothesis that flexible DR capacity is offered at a lower price on balancing markets compared to conventional generation resources, resulting in lower costs for grid operators to balance the grid, thus reducing societal costs for electricity provision and overall emissions through the integration of low-carbon balancing resources.

Keywords: demand-side management; demand response; flexibility service; balancing reserves; balancing market prices; regression analysis (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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