Demand-Side Bidding and Demand Elasticity in the Electricity Market

In the era of changing climate and rising costs of energy, demand side management (DSM) presents an important way of reducing electricity demand. Formerly the domain of vertically integrated utilities, DSM is making its comeback also in the deregulated environment. As a supplementary service of the system operator and power suppliers, specific DSM programs are used for load diagram shaping. Flattening the load curve has been recognized by utilities as an effective way of cutting down the cost of producing electricity. Moreover, it offers the suppliers a tool for optimizing their trading portfolio. The paper shortly describes DSM and explains how the DSM programs can be used to influence the load diagram in the open market environment. A new DSM module is presented, incorporated into the existing electricity market simulation package ELMASplus. The DSM module takes into account the elasticity of demand-side offers. A conceptual framework is developed for evaluation of the influence of elasticity of demand in an open electricity market. For simulation of demand-side bidding and demand elasticity, a software package ELMASplus, developed at University of Ljubljana, was used. ELMASplus models the day-ahead simultaneous 24-hour supply and demand auction. The simulation time step in ELMASplus is one hour. It takes into account the key factors that influence the electricity prices, such as power plant characteristics, their bidding strategies, transmission system attributes, and the relevant hydrological data for hydro power plants. Based on the chosen operating scenarios, fuel and emission coupon price forecasts, and hydrology and demand forecast, ELMASplus simulates the day-ahead electricity market auction. The results are hourly market clearing price (MCP) and the corresponding power-plant production schedule. From these results, electricity production of each generation unit, its income from electricity sales, fuel consumption and associated costs, GHG emissions and comparable consumption savings can be calculated. The paper presents the concept of an elastic demand bid, illustrating the idea through simulations. In an elastic demand bid, the demand for a commodity (e.g. electricity) decreases as the price of the commodity increases. First, a virtual case is described, showing how demand-bid elasticity influences the demand of electricity. Two supply bids are taken into consideration. Napaka! Vira sklicevanja ni bilo mogoce najti. shows that: in case of supply offer 1, the MCP in elastic demand biddig is lower than in inelastic demand bidding, in case of supply offer 2, the MCP in elastic demand biddig is higher than in inelastic demand bidding. We can conclude that expensive supply, met by elastic demand bid, leads to relatively lower MCP, whereas cheap supply leads to relatively higher MCP. Finally, the concept is illustrated on a real-test case, based on the Slovenian power system. The demand elasticities of epsilon = 5 % and epsilon = 10 % were tested on a 24 hour load profile. The results are shown in Figure 7 and Figure 8. The paper therefore demonstrates how the simulation package ELMASplus can be used for a comprehensive evaluation of possible demand scenarios, incorporating demand-side bidding strategies into the electricity market.