How will demand response aggregators affect electricity markets? — A Cournot game analysis

The future electricity grid will include greater and more sophisticated demand side participation. Favored by recent rulings by the Federal Energy Regulatory Commission (FERC), Demand Response (DR) aggregators can combine load requests from a large consumer base and provide load modifications that will be compensated in the wholesale electricity market at the market price. This paper examines the market effects of including Green Energy Management System (GEMS), a future Demand Response (DR) program that will take advantage of operational flexibility of certain types of loads to shape demand profile. Adopting a Cournot game model, we give equilibrium analysis of wholesale electricity market incorporating GEMS as a DR aggregator. The players in the game include traditional generators, the GEMS, and the Independent System Operator (ISO). We provide generalized forms of the optimality conditions for each of these players and show that under certain conditions, the market equilibrium exists and is unique. Our numerical results indicate that the inclusion of GEMS within the power network reduces the average market price of electricity and saves money for customers.

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