Optimal Generation Mix With Short-Term Demand Response and Wind Penetration

Demand response, defined as the ability of load to respond to short-term variations in electricity prices, plays an increasingly important role in balancing short-term supply and demand, especially during peak periods and in dealing with fluctuations in renewable energy supplies. However, demand response has not been included in standard models for defining the optimal generation technology mix. Three different methodologies are proposed to integrate short-term responsiveness into a generation technology mix optimization model considering operational constraints. Elasticities are included to adjust the demand profile in response to price changes, including cross-price elasticities that account for load shifts among hours. As energy efficiency programs also influence the load profile, interactions of efficiency investments and demand response are also modeled. Comparison of model results for a single year optimization with and without demand response shows peak reduction and valley filling effects, impacting the optimal amounts and mix of generation capacity. Increasing demand elasticity also increases the installed amount of wind capacity, suggesting that demand response yields environmental benefits by facilitating integration of renewable energy.