The Cost Reduction Potential of Demand Response in Balancing Markets from a System Perspective

Wessel Bakker*, Ioannis Lampropoulos*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Demand response (DR) can potentially provide a cost-efficient alternative for balancing the electricity grid by replacing fossil-fuelled power plants for the provision of flexible capacity. This paper aims to quantify the cost reduction potential of DR from a system perspective. Historical data of balancing markets are studied using regression and average bid price analysis to quantify the effect of the participation of DR resources on the price of flexible capacity for the provision of balancing reserves by focusing on two case studies in Great Britain and the Netherlands. It is estimated that DR bids are, on average, 35% lower than the market average. The regression analysis concluded that 1% higher participation of DR in balancing markets leads, on average, to a 2.7% lower prices for flexible capacity. The results verify the hypothesis that flexible DR capacity is offered at a lower price on balancing markets compared to conventional generation resources, resulting in lower costs for grid operators to balance the grid, thus reducing societal costs for electricity provision and overall emissions through the integration of low-carbon balancing resources.

Original languageEnglish
Article number2817
JournalEnergies
Volume17
Issue number12
DOIs
Publication statusPublished - Jun 2024

Keywords

  • balancing market prices
  • balancing reserves
  • demand response
  • demand-side management
  • flexibility service
  • regression analysis

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