Estimating the Benefit from Independent Aggregation in the Day-Ahead Market

Abstract

Abstract As the EU countries are working on adapting the Electricity Directive to allow independent aggregation (IA) of demand response (DR) in all the electricity markets, this paper provides an assessment of potential benefits from DR in the day-ahead market, which has proven particularly challenging for the IA regulatory framework development. The model devised in this study uses data of the public wholesale market price curve from the Nord Pool power exchange to simulate market clearing results with introduction of certain amounts of DR that, via independent aggregation, competes alongside generation and is able to shift the supply curve. The simulated new market equilibrium point allows estimating price reduction capability of demand response, the total system-wide benefits, as well as analysing the potential remuneration mechanisms for independent aggregators and implications on their business models. While the results demonstrated a high value from DR during the peak hours, the overall benefits during average price periods were rather low, thus exposing the unpredictability of the revenue stream and questioning the business case for IA in the day-ahead market. The proposed approach can be used for further analysis of different IA compensation mechanisms, considering the system-wide benefits it brings to the wholesale market.