Impact of price-based demand response on market clearing and locational marginal prices

This study quantitatively analyses the impact of price-based demand response (DR) on market clearing and locational marginal prices (LMPs) of power systems using the network-constrained unit commitment (NCUC) model. The price-based DR is formulated via linear price-sensitive demand bidding curves, while considering DR participation levels and energy payback rates. DR is formulated as load shifting as well as load curtailment by adopting different energy payback rates to represent the amount of energy shifted among different hours. The objective is to maximise the system social welfare, which includes the revenue from price-sensitive DR loads minus the energy production costs from generating units. The NCUC problem is formulated as a mixed-integer linear programming (MILP) problem and solved by the commercial MILP solver. Numerical case studies are performed to analyse the impacts of DR on unit commitment, LMPs, energy production costs and DR load payments. Results indicate that with the current market clearing mechanism which maximises the system social welfare, DR dispatch may augment LMPs by displacing less flexible generating units and/or triggering additional transmission congestions and, in turn, increase DR loads' payments, which will ultimately influence the financial stability of DR providers and the sustainable deployment of DR programs.