IDEAS home Printed from https://ideas.repec.org/p/hal/journl/halshs-01398780.html
   My bibliography  Save this paper

Demand response in adjustment markets for electricity

Author

Listed:
  • Claude Crampes

    (IDEI - Institut d'Economie Industrielle - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse)

  • Thomas-Olivier Léautier

    (CRM - Centre de Recherche en Management - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - IAE - Institut d'Administration des Entreprises - Toulouse - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article examines the participation of consumers in adjustment markets for electricity power. These markets allow market participants to respond to random supply shocks occurring after quantities have been contracted. Under perfect competition, opening the adjustment market to consumers always increase ex post efficiency, hence welfare, as expected. However, this result is not robust to strategic behavior by consumers who hold private information on their value for electricity power. We prove that under such information asymmetry, allowing consumers to enter the adjustment market may reduce welfare. This arises because suppliers limit the information rents they must abandon by proposing inefficient ex ante retail contracts. If the value of ex post efficiency gains due to consumers' participation is low, whereas the information distortion is high, the overall net effect is a welfare decrease.

Suggested Citation

  • Claude Crampes & Thomas-Olivier Léautier, 2015. "Demand response in adjustment markets for electricity," Post-Print halshs-01398780, HAL.
    • Handle: RePEc:hal:journl:halshs-01398780
    DOI: 10.1007/s11149-015-9284-0
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Spulber, Daniel F, 1992. "Optimal Nonlinear Pricing and Contingent Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 747-772, November.
    2. Chao, Hung-po, 2010. "Price-Responsive Demand Management for a Smart Grid World," The Electricity Journal, Elsevier, vol. 23(1), pages 7-20, January.
    3. Chris M. Wilson & Catherine Waddams Price, 2010. "Do consumers switch to the best supplier?," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 647-668, October.
    4. Torriti, Jacopo & Hassan, Mohamed G. & Leach, Matthew, 2010. "Demand response experience in Europe: Policies, programmes and implementation," Energy, Elsevier, vol. 35(4), pages 1575-1583.
    5. Jean Tirole, 2005. "The Analysis of Tying Cases: A Primer," CPI Journal, Competition Policy International, vol. 1.
    6. Rajnish Kamat & Shmuel S. Oren, 2002. "Exotic Options for Interruptible Electricity Supply Contracts," Operations Research, INFORMS, vol. 50(5), pages 835-850, October.
    7. Claude Crampes & Thomas-Olivier Léautier, 2012. "Distributed Load-Shedding in the Balancing of Electricity Markets," RSCAS Working Papers 2012/40, European University Institute.
    8. Hung-po Chao & Mario DePillis, 2013. "Incentive effects of paying demand response in wholesale electricity markets," Journal of Regulatory Economics, Springer, vol. 43(3), pages 265-283, June.
    9. Hung-po Chao, 2012. "Competitive electricity markets with consumer subscription service in a smart grid," Journal of Regulatory Economics, Springer, vol. 41(1), pages 155-180, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cédric Clastres & Haikel Khalfallah, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Post-Print hal-03193212, HAL.
    2. Chloé Coq & Henrik Orzen & Sebastian Schwenen, 2017. "Pricing and capacity provision in electricity markets: an experimental study," Journal of Regulatory Economics, Springer, vol. 51(2), pages 123-158, April.
    3. Clay Campaigne & Shmuel S. Oren, 2016. "Firming renewable power with demand response: an end-to-end aggregator business model," Journal of Regulatory Economics, Springer, vol. 50(1), pages 1-37, August.
    4. Clastres, Cédric & Khalfallah, Haikel, 2015. "An analytical approach to activating demand elasticity with a demand response mechanism," Energy Economics, Elsevier, vol. 52(PA), pages 195-206.
    5. Ren'e Aid & Dylan Possamai & Nizar Touzi, 2018. "Optimal electricity demand response contracting with responsiveness incentives," Papers 1810.09063, arXiv.org, revised May 2019.
    6. Ambec, Stefan & Crampes, Claude, 2021. "Real-time electricity pricing to balance green energy intermittency," Energy Economics, Elsevier, vol. 94(C).
    7. Rene Aid & Anupama Kowli & Ankur A. Kulkarni, 2023. "Signalling for Electricity Demand Response: When is Truth Telling Optimal?," Papers 2302.12770, arXiv.org, revised Jul 2023.
    8. Clastres, Cédric & Khalfallah, Haikel, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Energy Economics, Elsevier, vol. 98(C).
    9. Hennig, Roman J. & de Vries, Laurens J. & Tindemans, Simon H., 2023. "Congestion management in electricity distribution networks: Smart tariffs, local markets and direct control," Utilities Policy, Elsevier, vol. 85(C).
    10. Cédric Clastres & Haikel Khalfallah, 2015. "An Analytical Approach to Activating Demand Elasticity with a Demand Response Mechanism," Post-Print hal-01222582, HAL.
    11. Daeho Kim & Dong Gu Choi, 2023. "The aggregator’s contract design problem in the electricity demand response market," Operational Research, Springer, vol. 23(1), pages 1-47, March.
    12. Cédric Clastres & Haikel Khalfallah, 2020. "Retailers' strategies facing demand response and markets interactions," Working Papers hal-03167543, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Moore, J. & Woo, C.K. & Horii, B. & Price, S. & Olson, A., 2010. "Estimating the option value of a non-firm electricity tariff," Energy, Elsevier, vol. 35(4), pages 1609-1614.
    2. Claude Crampes & Thomas-Olivier Léautier, 2012. "Distributed Load-Shedding in the Balancing of Electricity Markets," RSCAS Working Papers 2012/40, European University Institute.
    3. Stede, Jan & Arnold, Karin & Dufter, Christa & Holtz, Georg & von Roon, Serafin & Richstein, Jörn C., 2020. "The role of aggregators in facilitating industrial demand response: Evidence from Germany," Energy Policy, Elsevier, vol. 147(C).
    4. Ottavia Valentini & Nikoleta Andreadou & Paolo Bertoldi & Alexandre Lucas & Iolanda Saviuc & Evangelos Kotsakis, 2022. "Demand Response Impact Evaluation: A Review of Methods for Estimating the Customer Baseline Load," Energies, MDPI, vol. 15(14), pages 1-36, July.
    5. Heshmati, Almas, 2012. "Survey of Models on Demand, Customer Base-Line and Demand Response and Their Relationships in the Power Market," IZA Discussion Papers 6637, Institute of Labor Economics (IZA).
    6. Almas Heshmati, 2014. "Demand, Customer Base-Line And Demand Response In The Electricity Market: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 862-888, December.
    7. Hung-po Chao & Mario DePillis, 2013. "Incentive effects of paying demand response in wholesale electricity markets," Journal of Regulatory Economics, Springer, vol. 43(3), pages 265-283, June.
    8. Woo, C.K. & Milstein, I. & Tishler, A. & Zarnikau, J., 2019. "A wholesale electricity market design sans missing money and price manipulation," Energy Policy, Elsevier, vol. 134(C).
    9. Lambin, Xavier, 2020. "Integration of Demand Response in Electricity Market Capacity Mechanisms," Utilities Policy, Elsevier, vol. 64(C).
    10. Olkkonen, Ville & Rinne, Samuli & Hast, Aira & Syri, Sanna, 2017. "Benefits of DSM measures in the future Finnish energy system," Energy, Elsevier, vol. 137(C), pages 729-738.
    11. Elena Vechkinzova & Yelena Petrenko & Yana S. Matkovskaya & Gaukhar Koshebayeva, 2021. "The Dilemma of Long-Term Development of the Electric Power Industry in Kazakhstan," Energies, MDPI, vol. 14(9), pages 1-21, April.
    12. Moreno, Manuel & Novales, Alfonso & Platania, Federico, 2019. "Long-term swings and seasonality in energy markets," European Journal of Operational Research, Elsevier, vol. 279(3), pages 1011-1023.
    13. Marcelo G. Figueroa, 2006. "Pricing Multiple Interruptible-Swing Contracts," Birkbeck Working Papers in Economics and Finance 0606, Birkbeck, Department of Economics, Mathematics & Statistics.
    14. Abdul Conteh & Mohammed Elsayed Lotfy & Kiptoo Mark Kipngetich & Tomonobu Senjyu & Paras Mandal & Shantanu Chakraborty, 2019. "An Economic Analysis of Demand Side Management Considering Interruptible Load and Renewable Energy Integration: A Case Study of Freetown Sierra Leone," Sustainability, MDPI, vol. 11(10), pages 1-19, May.
    15. Griffin, Míde & Lyons, Sean & Mohan, Gretta & Joseph, Merin & Domhnaill, Ciarán Mac & Evans, John, 2022. "Intra-operator mobile plan switching: Evidence from linked survey and billing microdata," Telecommunications Policy, Elsevier, vol. 46(7).
    16. Björn Lutz, 2010. "Pricing of Derivatives on Mean-Reverting Assets," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-02909-7, July.
    17. Kim, Kyungah & Choi, Jihye & Lee, Jihee & Lee, Jongsu & Kim, Junghun, 2023. "Public preferences and increasing acceptance of time-varying electricity pricing for demand side management in South Korea," Energy Economics, Elsevier, vol. 119(C).
    18. Salies, Evens, 2013. "Real-time pricing when some consumers resist in saving electricity," Energy Policy, Elsevier, vol. 59(C), pages 843-849.
    19. Zhiyong Liu & Yue Qiao, 2012. "Abuse of Market Dominance Under China’s 2007 Anti-monopoly Law: A Preliminary Assessment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(1), pages 77-107, August.
    20. Keon Baek & Woong Ko & Jinho Kim, 2019. "Optimal Scheduling of Distributed Energy Resources in Residential Building under the Demand Response Commitment Contract," Energies, MDPI, vol. 12(14), pages 1-19, July.

    More about this item

    Keywords

    electricity consumption; adjustment market; demand response; information asymmetry;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-01398780. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.