The Power to Choose: Demand Response in Liberalised by Published by : OECD Publishing

By Published by : OECD Publishing

Hugely unstable electrical energy costs have gotten a extra common and undesirable attribute of contemporary electrical energy wholesale markets. yet low call for elasticity, often the results of a scarcity of incentives and shoppers' lack of ability to manage call for, capability

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Extra resources for The Power to Choose: Demand Response in Liberalised Electricity Markets (Energy Market Reform)

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Capacity Markets In a well-functioning wholesale market with well-developed demand response capability, the demand-supply interaction would ensure that the clearing price includes a component that reflects the value the consumer would be willing to pay for reliability (including a reserve requirement). Absent this connection between supply and demand, market designs have established artificial valuation methods in which two basic forms of capacity market ensure the need for reliability is met: 24.

The disincentives for investment in peak generation, that increased demand response would give, make it important that the focus be increasing demand response in an economically efficient way22 – ensuring that investments in either demand or supply side investments are evaluated as equitably as possible. 22. E. Ruff (2002). DEMAND RESPONSE MARKETS AND ECONOMICS 3 47 Over the medium to long-term, stronger elasticity will mean that price peaks will be less dramatic but somewhat higher prices will persist over a longer number of hours, providing the basis for a return on the necessary investment in demand response capability23.

Some consumers would be willing to turn off some, or part of their load, at short notice, or even no notice – if the price were right. Other consumers might prefer to pay even very high prices rather than lose supply. Pricing options in electricity markets should be diverse enough to offer consumers the opportunity to reflect their own value thresholds. If consumers’ underlying preferences were expressed in the market, then generators and suppliers, as well as customers or agents acting on their behalf, would be able to make optimal investment decisions and overall economic welfare would be maximised.

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