Demand response control structure in imperfectly competitive power markets: Independent or integrated?

This article investigates different types of actors controlling demand response (DR) operations under Cournot competition. Analytical results linking shiftable load level, market equilibrium, and welfare are obtained for DR operated either by an independent aggregator (price-taker or price-maker), by end-consumers’ suppliers, or within the portfolio of generators. An application to a 2035 French power system with detailed flexible appliances constraints is also proposed. Results show that supplier-integrated DR yields the greatest price reductions and lowest shiftable load withholding, while DR integrated with baseload producers has the weakest effects on prices and may worsen welfare losses compared to a perfectly competitive market. While DR deployment consistently improves welfare and lowers prices, the extent depends on the control structure. Independent aggregation and supplier integration deliver similar welfare gains but shift surplus toward consumers, whereas integration within generators results in up to a 6€/MWh higher producer surplus compared to the other structures. Policy implications highlight the importance of DR deployment overall but caution against DR integration exclusively within baseload generators’ portfolios due to limited market benefits.