New Real-Time Demand Response Market Co-Optimized With Conventional Energy Market

Abstract

In addition to procuring energy, consumers in electricity markets procure demand response (DR) services. Demand and supply of energy in the electricity market drives the demand for DR services. Through the net benefits test (NBT), economic procurement of DR is limited to an amount that ensures that consumers benefit with the procurement of DR services. However, the NBT neither a) recognizes the coexistence of the DR market with the energy market; nor b) optimizes social welfare in the DR market in concert with that of the energy market. This lack of accounting for DR market surplus results in economic inefficiency. To address this shortcoming, we advance past works by: a) proposing a real-time DR market where the DR demand curve is a function of opportunity in the energy market; and b) co-optimizing energy and DR markets such that the total social welfare derived from both markets is maximized simultaneously. We also present an optimal power flow formulation and process to implement our ideas in real-time electricity markets. The formulation is tested on a simple test case and a system based on actual Pennsylvania-New Jersey-Maryland (PJM) data. For the PJM case, total social welfare is increased by 1.41% to 3.05% over existing DR procurement strategies, resulting in $14.5M to $30.9M additional benefits per hour.