Skip to main content

Part of the book series: Studies in Systems, Decision and Control ((SSDC,volume 144))

Abstract

The electricity industry is undergoing a deep transformation as Europe moves towards a greener, healthier future—the growth of renewable generation has surpassed all expectations and demand response (DR) has emerged as a key element of market design. Most European countries have already opened their markets to the participation of demand response and, over the long-term, DR will probably reach its full potential as the entire range of DR programs will be made available to retail customers. To date, however, progress has been only gradual. There is currently a need to understand and quantify the major impacts and benefits of DR, to facilitate an effective implementation of DR programs. Accordingly, this chapter investigates the impact of different levels of DR on the Iberian market prices, during the period 2014–2017, and analyzes the potential benefits for market participants and retail customers. The results generated by an agent-based simulation tool, called MATREM, are striking. In the year 2017, for instance, a modest load reduction of 5% when prices rose above 80 €/MWh yielded the (very large) benefit of 76.62 million €. Also, the same decrease in load when prices exceeded 90 €/MWh provided the (still large) benefit of 39.05 million €. The chapter concludes with specific recommendations—for consideration by state institutions, system operators, electric utilities and other market participants—to foster demand response in Portugal through both incentive-based and price-based programs.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 149.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 199.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 199.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    The authors are aware of no other work to investigate the price effect of DR on the Iberian market at times of system constraints. Fernández et al. [8] analyze the economic impact of a DR program—the voluntary price for small consumers—on the Iberian market during the period from April 2014 till March 2015. However, the study considers load reductions of 1.5, 3 and 6% uniform for all hours of a 24-hour day. Also, there are various other studies that link specific levels of DR to decreases in market prices, mostly involving markets from the United States, indicating that the benefits may be quite significant (see, e.g., the three-percent solution [9]).

  2. 2.

    Notice that demand response can perform three key functions [4, 10]: energy, capacity and ancillary services. Put another way, demand response can participate on wholesale energy markets (i.e., day-ahead and real-time markets), capacity markets, and balancing and ancillary services markets. Throughout this chapter, we focus primarily on day-ahead markets and the material that follows clearly reflects this bias.

  3. 3.

    A demand response program is a mechanism for communicating prices and willingness to pay between wholesale and retail power markets, with the immediate objective of achieving load changes, particularly at times of high wholesale prices [1].

  4. 4.

    To be eligible for most demand bidding programs, customers must able to reduce load by a minimum of 100 kW. Small consumers are allowed to participate in some programs through demand response aggregators.

  5. 5.

    Chapter 2 gives a brief overview of energy markets and Chap. 8 describes the DAM supported by the agent-based system called MATREM. The interested reader is therefore referred to them for further details of market operation and electricity pricing. See also Sect. 10.3.1 for a detailed overview of the Iberian Electricity Market.

  6. 6.

    For example, customers unable to reduce load by the bid amount during the scheduled time pay the higher of the day-ahead price or the real-time price for the amount of the incomplete scheduled load reduction [19].

  7. 7.

    Orden ITC/2370/2007, BOE-A-2007-14798, enacted on 4 August, 2007.

  8. 8.

    Orden IET/2013/2013, BOE-A-2013-11461, passed on 1 November, 2013.

  9. 9.

    Notice that the natural way to account for demand response in day-ahead markets, when some customers face dynamic retail prices, is for retailers to offer price-responsive loads. For instance, a retailer that expects to serve 5000 MW in a hot summer period, armed with the information that RTP customers will reduce load by 250 MW if prices reach 80 €/kWh, may submit offers to purchase 5000 MW if prices remain low or 4750 MW if prices are expected to rise above 80 €/kWh. Such price-responsive demand offers provide the mechanism for informing the market about the extent of demand response, and typically result in lower day-ahead prices.

  10. 10.

    Generally speaking, real-time pricing means tariffed retail charges for delivered electric power that vary hour-to-hour, determined to some extent from wholesale market prices, using pre-specified methodologies.

  11. 11.

    Recall that the price of electricity varies with the time of day, day of week, or season of the year, and typically peaks when load peaks.

  12. 12.

    Two-part RTP customers who do not deviate from the baseline level pay the same amount under the two-part rate or the standard (non-RTP) rate. Accordingly, the two-part RTP rate is sometimes called “revenue neutral at the CBL” [28].

  13. 13.

    Royal Decree-Law 9/2013, BOE-A-2013-7705, of 12 July, 2013.

  14. 14.

    Royal Decree 216/2014, BOE-A-2014-3376, enacted on 28 March, 2014.

  15. 15.

    Royal Decree-Law 8/2014, BOE-A-2014-7064, passed on 5 July, 2014. Also, Law 18/2014, BOE-A-2014-10517, of 17 October, 2014.

  16. 16.

    https://www.esios.ree.es/en/pvpc (accessed on 15 May, 2017).

  17. 17.

    The instrumental sale price, or minimum price (price floor), is set at 0 €/MWh, and the instrumental purchase price, or maximum price (price cap), is set at 180.30 €/MWh [38].

  18. 18.

    Here, for the sake of clarity in exposition, the two sale curves are referred to as the “first” or “initial” curve and the “second” or “actual” curve.

  19. 19.

    A full description of the benefits of demand response in electricity markets is beyond the scope of this chapter. For further information, the interested reader is referred to [2, Sect. 3].

  20. 20.

    Figure 10.2 presents a hypothetical situation for illustrative purposes only. For the sake of clarity, the load reduction from customers participating in DR programs—that is, the demand reduction that moves consumption from \(Q^*\) to \(Q_{DR}\)—was intentionally enlarged.

  21. 21.

    A price-duration curve is a curve that shows the fraction of the number of hours of a year during which the electricity price was less than a given value. This curve appears commonly in the technical literature on energy markets (see, e.g., [45, 46]). It allows us to observe the percentage of hours where the price reached and/or exceeded a given value. To enhance readability, and also in the interests of completeness, we present this information in a table.

  22. 22.

    The reader familiar with the Iberian market (and other European markets) might find the lower bound (75 €/MWh) and the upper bound (100 €/MWh) of the price threshold somewhat arbitrary (and even rather ad hoc). Nevertheless, the lower bound is considerably higher than the average price for each year of the observation period (see Table 10.1) and, therefore, suitable to the purposes of this work. Furthermore, the decision to set the upper bound at 100 €/MWh seems to be natural, intuitive and rather elegant.

  23. 23.

    The market prices never exceeded 110 €/MWh during the observation period. The highest price (110 €/MWh) was observed on Monday 17 February 2014 at 10 p.m.

  24. 24.

    Chapter 8 is entirely devoted to the agent-based simulation tool and the interested reader is referred to it for details.

  25. 25.

    The reason for an upper bound of 60 €/MWh is as follows. The simulation-based study includes scenarios involving load reductions of 1, 3 and 5%, and price thresholds of 80, 90 and 100 €/MWh (see below). This means that the market-clearing price may drop below 80 €/MWh, depending on the scenario under consideration. However, for all scenarios, the lowest equilibrium price is always greater than 60 €/MWh.

  26. 26.

    For the purposes of this work, a demand response event is any event that results in a load reduction when the spot power price rises above a given threshold. Such an event corresponds to a single hour of operation, may occur at any time of the day, and is assumed to be related to a reduction in electricity usage by retail customers.

  27. 27.

    Market splitting in the daily horizon involves basically the segmentation of the Iberian market into two independent markets due to congestion in the Portugal-Spain interconnection, typically leading to different prices for the Portuguese and Spanish areas, yet making possible to exhaust the available capacity safely. Chapter 9 presents a brief introduction to market splitting in the daily horizon and the interested reader is, therefore, referred to it for details (see also [53, 54]).

  28. 28.

    The average monthly price reductions are computed by considering the hours of operation corresponding to demand response events only.

  29. 29.

    Strictly speaking, the left-hand dark blue curve of Fig. 10.7 is also the price-inelastic demand curve adopted for scenario B3.

  30. 30.

    Notice that the year 2017 involved the highest number of demand response events (namely, 201 DR events). All events occurred in January.

  31. 31.

    As stated in Chap. 9, a considerable volume of electricity is traded via bilateral contracts, whose price may deviate from the spot market price (see, e.g., [37]). Nevertheless, the market price is the leading price indicator for all electricity trades and, therefore, the price paid through bilateral contracts is based, to some extent, upon that price (but see, e.g., [55].

  32. 32.

    As noted above, the magnitude of the price reduction decreases gradually from 2014 to 2017. In direct contrast, the financial benefit of DR is much greater in 2017 than in 2014. The main reason for this increase is naturally related to the number of DR events considered in both years, namely 34 events in 2014 and 201 in 2017.

  33. 33.

    In this chapter, and throughout the book, the term “environmental benefit of DR” is used to denote the CO\({_2}\) savings resulting from demand response.

References

  1. Braithwait, S., Eakin, K., Inc., Laurits R. Christensen A.: The role of demand response in electric power market design. Technical Report, Edison Electric Institute, Washington, D.C. (October 2002)

    Google Scholar 

  2. DOE: Benefits of Demand Response in Electricity Markets and Recommendations for Achieving Them. A Report to the United States Congress Pursuant to Section 1252 of the Energy Policy Act of 2005, US Department of Energy (February 2006)

    Google Scholar 

  3. FERC: Standardized Transmission Service and Wholesale Electric Market Design. Working Paper of the Federal Energy Regulatory Commission Staff, Washington, D.C. (March 2002)

    Google Scholar 

  4. IEA: Re-powering Markets: Market Design and Regulation during the Transition to Low-carbon Power Systems. International Energy Agency, Paris, France (2016)

    Google Scholar 

  5. European Union: Directive 2012/27/EU of the European Parliament and of the Council on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC (25 October 2012) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:315:0001:0056:en:PDF (Cited on 17 June 2017)

  6. European Commission: Delivering the Internal Electricity Market and Making the Most of Public Intervention. Communication from the Commission (5 November 2013) https://ec.europa.eu/energy/sites/ener/files/documents/com_2013_public_intervention_en_1.pdf (Cited on 17 June 2017)

  7. European Commission: Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity. 2016/0379 (COD) (30 November 2016) http://www.ipex.eu/IPEXL-WEB/dossier/document/COM2016861FIN.do (Cited on 17 June 2017)

  8. Fernández, J., Payán, M., Santos, J., García, A.: The voluntary price for the small consumer: real-time pricing in spain. Energy Policy 102, 41–51 (2017)

    Article  Google Scholar 

  9. IRC: Harnessing the Power of Demand – How ISOs and RTOs are Integrating Demand Response into Wholesale Electricity Markets. Report prepared by the Markets Committee of the ISO/RTO Council, United States (16 October 2007)

    Google Scholar 

  10. Brown, T., Newell, S., Oates, D., Spees, K.: International Review of Demand Response Mechanisms. Report prepared by the Brattle Group for the Australian Energy market Commission, Cambridge (October 2015)

    Google Scholar 

  11. Hirst, E., Kirby, B.: Retail-Load Participation in Competitive Wholesale Electricity Markets. Technical Report, Edison Electric Institute, Washington D.C. and Project for Sustainable FERC Energy Policy, Alexandria, VA (2001)

    Google Scholar 

  12. IEA: The Power to Choose: Demand Response in Liberalised Electricity Markets. International Energy Agency, Paris, France (2003)

    Google Scholar 

  13. Hogan, W.: Demand Response Pricing in Organized Wholesale Markets. Report Prepared for ISO/RTO Council (13 May 2010) www.hks.harvard.edu/fs/whogan/Hogan_IRC_DR_051310.pdf (Cited on 17 June 2017)

  14. FERC: National Action Plan on Demand Response. Report of the Federal Energy Regulatory Commission Staff, Docket N. AD09-10, Washington, D.C. (June 2010)

    Google Scholar 

  15. FERC: Assessment of Demand Response and Advance Metering. Staff Report of the Federal Energy Regulatory Commission, Docket AD06-2-000, Washington, D.C. (August 2006, revised December 2008)

    Google Scholar 

  16. FERC: Assessment of Demand Response and Advance Metering. Staff Report of the Federal Energy Regulatory Commission, Washington, D.C. (December 2015)

    Google Scholar 

  17. FERC: Assessment of Demand Response and Advance Metering. Staff Report of the Federal Energy Regulatory Commission, Washington, D.C. (December 2016)

    Google Scholar 

  18. SEDC: Mapping Demand Response in Europe Today. Report of the Smart Energy Demand Coalition, Brussels, Belgium (2015)

    Google Scholar 

  19. NYISO: Day-Ahead Demand Reduction Program Manual. New York Independent System Operator, New York (July 2003)

    Google Scholar 

  20. NEMS: Implementing Demand Response in the National Electricity Market of Singapore. Energy Market Authority, Singapore (October 2013)

    Google Scholar 

  21. KEMA-XENERGY: Protocol Development for Demand Response Calculation: Findings and Recommendations. Consultant Report prepared by KEMA-XENERGY for the California Energy Commission, CA (February 2003)

    Google Scholar 

  22. FERC: Demand Response Compensation in Organized Wholesale Energy Markets. Order N. 745, Docket N. RM10-17-000, Washington, D.C. (March 2011)

    Google Scholar 

  23. Bertoldi, P., Zancanella, P., Boza-Kiss, B.: Demand Response status in EU Member States. Science for Policy report by the Joint Research Centre, EUR 27998 EN, European Union, Brussels, Belgium (2016)

    Google Scholar 

  24. SEDC: Explicit Demand Response in Europe: Mapping the Markets 2017. Report of the Smart Energy Demand Coalition, Brussels, Belgium (2017)

    Google Scholar 

  25. CNMC: Spanish Energy Regulator’s National Report To The European Commission 2017. Report of the Comisión Nacional de Los mercados y la Competencia, Madrid, Spain (July 2017)

    Google Scholar 

  26. ERSE: Annual Report on the Electricity and Natural Gas Markets in 2015 in Portugal. Entidade Reguladora dos Serviços Energéticos, Lisboa, Portugal (July 2016)

    Google Scholar 

  27. ERSE: Annual Report on the Electricity and Natural Gas Markets in 2016 in Portugal. Entidade Reguladora dos Serviços Energéticos, Lisboa, Portugal (July 2017)

    Google Scholar 

  28. EPRI: A Taxonomy of Retail Electricity Products. Report of the Electric Power Research Institute, Palo Alto, California (December 2002)

    Google Scholar 

  29. ComED: Hourly Pricing Program Guide 2016–2017. Commonwealth Edison Company, Chicago, Illinois (2017) https://hourlypricing.comed.com/wp-content/uploads/2017/10/2017-HP-program-guide-v13.pdf (Cited on 24 June, 2017)

  30. Penn State Extension: Renewable and Alternative Energy Fact Sheet – Real-time Pricing for Electricity. The Pennsylvania State University, PA (2013) https://extension.psu.edu/real-time-pricing-for-electricity (Cited on 24 June, 2017)

  31. Eakin, K., Faruqui, A.: Pricing retail electricity - making money selling a commodity. In: Faruqui, A., Eakin, K. (eds.) Pricing in Competitive Electricity Markets, pp. 5–31. Springer Science+Business Media, New York (2000)

    Chapter  Google Scholar 

  32. Huso, S.: Real time pricing - a unified rate design approach. In: Faruqui, A., Eakin, K. (eds.) Pricing in Competitive Electricity Markets, pp. 307–312. Springer Science+Business Media, New York (2000)

    Chapter  Google Scholar 

  33. O’Skeasy, M.: How to buy low and sell high. Electr. J. 11(1), 24–529 (1998)

    Google Scholar 

  34. EURELECTRIC: Dynamic pricing in electricity supply. Union of the Electricity Industry Position Paper, Brussels, Belgium (February 2017)

    Google Scholar 

  35. CNMC: Informe Sobre el Cumplimiento del Primer Hito del Plan de Substitución de Contadores. Report of the Comisión Nacional de Los mercados y la Competencia, INF/DE/006/15, Madrid, Spain (May 2015)

    Google Scholar 

  36. CNMC: Informe Sobre la Efectiva Integración de los Contadores con Telemedida y Telegestión Eléctricos con Potencia Contratada Inferior a 15 KW a Finales del Primer Semestre de 2016. Report of the Comisión Nacional de Los mercados y la Competencia, IS/DE/002/16, Madrid, Spain (February 2017)

    Google Scholar 

  37. MIBEL Regulatory Council: Description of the Operation of MIBEL (November 2009) http://www.erse.pt/eng/electricity/MIBEL/Documents/Description_Operation_MIBEL.pdf (Cited on 24 June, 2017)

  38. OMIE: Daily and Intraday Electricity Market Operating Rules (May 2014) http://www.omie.es/files/20140509_reglas_v11_ingles.pdf (Cited on 24 June, 2017)

  39. OMIE: “Operador del Mercado Ibérico de Energía (Spanish Electricity Market Operator).” Market Results (online data) http://www.omie.es/files/flash/ResultadosMercado.swf (Cited on 24 June, 2017)

  40. OMIE: Market Report (2014) http://www.omie.es/en/files/informe_mercado_ingles.pdf (Cited on 24 June, 2017)

  41. OMIE: Price Report (2015) http://www.omie.es/en/files/omie_informe_precios_2015_english_0.pdf (Cited on 24 June, 2017)

  42. OMIE: Price Report (2016) http://www.omie.es/files/informe_precios_ing_navegable.pdf (Cited on 24 June, 2017)

  43. OMIE: Informe Mensual (January 2017) http://www.omie.es/files/informe_mensual_enero_2017.pdf (Cited on 24 June, 2017)

  44. OMIE: Informe Mensual (July 2017) http://www.omie.es/files/informe_mensual_julio_2017.pdf (Cited on 24 June, 2017)

  45. Stoft, S.: Power Systyem Economis – Designing Markets for Electricity. IEEE Press and Wiley Interscience (2002)

    Google Scholar 

  46. Kirschen, D., Strbac, G.: Fundamentals of Power System Economics. Wiley, Chichester (2004)

    Book  Google Scholar 

  47. Vidigal, D., Lopes, F., Pronto, A., Santana, J.: Agent-based Simulation of Wholesale Energy Markets: a Case Study on Renewable Generation. In: Spies, M., Wagner, R., Tjoa, A. (eds.) 26th Database and Expert Systems Applications (DEXA 2015), pp. 81–85. IEEE (2015)

    Google Scholar 

  48. Algarvio, H., Couto, A., Lopes, F., Estanqueiro, A., Santana, J.: Multi-agent energy markets with high levels of renewable generation: a case-study on forecast uncertainty and market closing time. In: Omatu, S., et al. (eds.) 13th International Conference on Distributed Computing and Artificial Intelligence, pp. 339–347. Springer International Publishing (2016)

    Google Scholar 

  49. Lopes, F., Rodrigues, T., Sousa, J.: Negotiating bilateral contracts in a multi-agent electricity market: a case study. In: Hameurlain, A., Tjoa, A., Wagner, R. (eds.) 23rd Database and Expert Systems Applications (DEXA 2012), pp. 326–330. IEEE (2012)

    Google Scholar 

  50. Sousa, F., Lopes, F., Santana, J.: Contracts for difference and risk management in multi-agent energy markets. In: Demazeau, Y., Decker, K., Pérez, J., De la Prieta, F. (eds.) Advances in Practical Applications of Agents, Multi-Agent Systems, and Sustainability: The PAAMS Collection (PAAMS 2015), pp. 339–347. Springer International Publishing (2015)

    Google Scholar 

  51. Lopes, F., Mamede, N., Novais, A.Q., Coelho H.: Negotiation in a multi-agent supply chain system. In: Third International Workshop of the IFIP WG 5.7 Special Interest Group on Advanced Techniques in Production Planning and Control, pp. 153–168. Firenze University Press (2002)

    Google Scholar 

  52. REN: Redes Energéticas Nacionais, Preços Mercado Spot, Portugal e Espanha. http://www.mercado.ren.pt/PT/Electr/InfoMercado/InfOp/MercOmel/Paginas/Precos.aspx (Cited on 25 June, 2017)

  53. ERSE and CMVM: Proposta de Mecanismo de Gestão conjunta da interligação Espanha-Portugal. Entidade Reguladora dos Serviços Energéticos and Comisssão do Mercado de Valores Mobiliários (March 2006). http://www.erse.pt/pt/mibel/compatibilizacaoregulatoria/Documents/PROPOSTADEMECANISMODEGEST%C3%83OCONJUNTADAINTERLIGA%C3%87%C3%83OESPANHAPORTUGAL.pdf (Cited on 15 May, 2017)

  54. ERSE, CMVM, CNE and CNMV: Proposta do Conselho de Reguladores para a Repartição da Capacidade de interligação entre os Mecanismos de “Market Splitting” e Leilões Explícitos de Capacidade no Âmbito do MIBEL. Entidade Reguladora dos Serviços Energéticos, Comisssão do Mercado de Valores Mobiliários, Comísión Nacional de Energía and Comísión Nacional del Mercado de Valores (May 2007). http://www.erse.pt/pt/mibel/compatibilizacaoregulatoria/Documents/PropostaCRreparticaodacapacidadedeinterligacao.pdf (Cited on 25 June, 2017)

  55. OMIP: General Contractual Terms: MIBEL PTEL Base Load Physical Futures Contracts. MIBEL Derivatives Market, Lisbon, Portugal (2016)

    Google Scholar 

Download references

Acknowledgements

This work was performed under the project MAN-REM (FCOMP-01-0124-FEDER-020397), supported by FEDER funds, through the program COMPETE (“Programa Operacional Temático Factores de Competividade”), and also National funds, through FCT (“Fundação para a Ciência e a Tecnologia”). Hugo Algarvio was funded by FCT (PD/BD/105863/2014). The authors wish to thank João Santana, from INESC-ID and also the Technical University of Lisbon (IST), and João Martins and Anabela Pronto, from the NOVA University of Lisbon, for their valuable comments and helpful suggestions to improve the chapter.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Fernando Lopes .

Editor information

Editors and Affiliations

Rights and permissions

Reprints and permissions

Copyright information

© 2018 Springer International Publishing AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Lopes, F., Algarvio, H. (2018). Demand Response in Electricity Markets: An Overview and a Study of the Price-Effect on the Iberian Daily Market. In: Lopes, F., Coelho, H. (eds) Electricity Markets with Increasing Levels of Renewable Generation: Structure, Operation, Agent-based Simulation, and Emerging Designs. Studies in Systems, Decision and Control, vol 144. Springer, Cham. https://doi.org/10.1007/978-3-319-74263-2_10

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-74263-2_10

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-74261-8

  • Online ISBN: 978-3-319-74263-2

  • eBook Packages: EngineeringEngineering (R0)

Publish with us

Policies and ethics