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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
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    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.
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    4. 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.
    5. Chao, Hung-po, 2010. "Price-Responsive Demand Management for a Smart Grid World," The Electricity Journal, Elsevier, vol. 23(1), pages 7-20, January.
    6. 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.
    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.
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    Citations

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    Cited by:

    1. 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.
    2. Ambec, Stefan & Crampes, Claude, 2021. "Real-time electricity pricing to balance green energy intermittency," Energy Economics, Elsevier, vol. 94(C).
    3. 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.
    4. 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.
    5. 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).
    6. 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.
    7. 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.
    8. Ren'e Aid & Dylan Possamai & Nizar Touzi, 2018. "Optimal electricity demand response contracting with responsiveness incentives," Papers 1810.09063, arXiv.org, revised May 2019.
    9. Cédric Clastres & Haikel Khalfallah, 2015. "An Analytical Approach to Activating Demand Elasticity with a Demand Response Mechanism," Post-Print hal-01222582, HAL.
    10. 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.
    11. Cédric Clastres & Haikel Khalfallah, 2020. "Retailers' strategies facing demand response and markets interactions," Working Papers hal-03167543, HAL.

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    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

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