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Integration of Demand Response into Day Ahead Markets: A Supply Side Approach
10.07.2010
In our initial Whitepaper, "Defining the Product"[1], we have provided some general principles and approaches to the development of markets that integrate Demand Response and Energy Efficiency resources. This paper presents a development of those general principles into specific algorithms and settlement protocols for the supply side integration of DR into Day Ahead markets. Having established in the previous Whitepaper the theoretic and policy rationale for the approach we will pursue, we will not reiterate those arguments in detail here, but refer the reader to that prior document for a fuller exposition if one is required.
The purpose of the market design presented here is to "maximize consumer surplus" as described more fully in the previous Whitepaper. The major principles underlying program design are the "Savings Principle" and the "Competitive Principle" outlined in that same presentation. We choose supply side integration because it is consistent with maximizing consumer surplus whereas a demand side approach, as espoused by the ISO, would squander savings opportunities available to all other customers by refusing to pay for Demand Response thereby limiting the amount of this service to less than the optimal amount. This anti-competitive restriction on trade in DR services is based on the ISO's policy position that paying for Demand Response to secure lower cost of service for all other customers does not serve a societally or economically legitimate preference.
To access the white paper, click
here.