Estimating the participation value of electricity demand-response programmes for a two-stage production system

Yunrong Zhang, Christoph H. Glock and Zhixiang Chen

International Journal of Production Research, 2022, vol. 60, issue 21, 6508-6528

Abstract: Electricity demand-response programmes, such as the incentive-based and price-based programmes, have been used by utilities to induce customers to reduce their electricity consumption during peak periods. This study investigates the production decisions of a two-stage production system under these programmes in a situation where peak periods arrive randomly in the manufacturing cycle. Analytical results show that under demand-response programmes, the manufacturer, who aims at minimising the total operational cost, usually selects a lower production rate during peak periods and a higher one during non-peak periods. Notably, the uncertainty of the peak periods also has a significant influence on the manufacturer's production plans under these programmes. This paper further investigates the efficiency of different demand-response programmes in reducing the inventory holding cost and electricity cost. The results indicate that participating in the demand-response programmes does not always result in a higher inventory holding cost, which goes against the manufacturer's intuition about these programmes. In addition, this paper evaluates the manufacturers' preference for these demand-response programmes by comparing the operational cost savings generated from participating in the two programmes. It turns out that both the demand-response signals and the inventory holding cost substantially influence the manufacturer's willingness to participate in the programmes.

Date: 2022
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DOI: 10.1080/00207543.2021.1992681

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