On the Inclusion of Energy-Shifting Demand Response in Production Cost Models: Methodology and a Case Study
In the context of future power system requirements for additional flexibility, demand response (DR) is an attractive potential resource. Its proponents widely laud its prospective benefits, which include enabling higher penetrations of variable renewable generation at lower cost than alternative storage technologies, and improving economic efficiency. In practice, DR from the commercial and residential sectors is largely an emerging, not a mature, resource, and its actual costs and benefits need to be studied to determine promising combinations of physical DR resource, enabling controls and communications, power system characteristics, regulatory environments, market structures, and business models. The work described in this report focuses on the enablement of such analysis from the production cost modeling perspective. In particular, we contribute a bottom-up methodology for modeling load-shifting DR in production cost models. The resulting model is sufficiently detailed to reflect the physical characteristics and constraints of the underlying flexible load, and includes the possibility of capturing diurnal and seasonal variations in the resource. Nonetheless, the model is of low complexity and thus suitable for inclusion in conventional unit commitment and market clearing algorithms. The ability to simulate DR as an operational resource on a power system over a year facilitates an assessment of its time-varying value to the power system.