Evaluating long-term profile of demand response under different market designs: A comparison of scarcity pricing and capacity auction

• Published in: Energy (Oxford) 2023-11, Vol.282, p.128096, Article 128096
• Main Authors: Huang, Zhenyu, Liu, Youbo, Li, Kecun, Liu, Jichun, Gao, Hongjun, Qiu, Gao, Shen, Xiaodong, Liu, Junyong
• Format: Article
• Language: English
• Subjects: Capacity auction; Demand response; Scarcity pricing; System dynamics
• ISSN: 0360-5442
• DOI: 10.1016/j.energy.2023.128096

Demand response (DR) is widely acknowledged as a promising solution to maintain the capacity adequacy of the power system. In China, DR is now shifting from government pricing to market-oriented pricing. However, the market pricing mechanism to be adopted is still inconclusive and the long-term influence of different pricing mechanisms on incentivizing DR remains unknown. Moreover, the market contains multiple participants, various strategic behaviors, and non-linear clearing procedures while traditional optimization models cannot capture the complex dynamics. This paper adopts a system dynamic (SD) method to evaluate the long-term profile of DR under different market designs. Firstly, an investment decision model of generation companies is formulated to simulate the growth tendency of capacity supply in a long-term period. Secondly, in the context of unmatured marketization, the growth tendency of DR and retail market users are modeled by Bass diffusion. Finally, scarcity pricing and capacity auction are applied to investigate the incentive influence of different market designs on DR. Through the simulation to 2035, the results show that compared with the energy-only market, scarcity pricing, and capacity auction can raise the capacity of DR from 3.12% to 7.58% and 9.21%, respectively. •The interactions among market participants are revealed by a system dynamics model.•The tendency of users participating in the market-oriented DR is simulated.•The influence of scarcity pricing and capacity auction mechanisms on DR is clarified.•The long-term profile of incentive-based DR is expounded.•Policy recommendations for DR pricing mechanism are given.