Flexible Demand and Supply As Enablers of Variable Energy Integration

Abstract

This article analyses the impact of the interplay between the demand response, wind penetration and hydropower in the Nordic power market. We develop a long-term equilibrium model in which the thermal power capacity adjusts to the zero-profit level over varying real-time pricing adoption rates and wind power shares. Our results show that an increased demand response decreases the amount of thermal power capacity and improves the utilization rate of thermal power and the value of wind power. We show a decreasing marginal gain from an increasing demand response adoption with respect to the thermal utilization and wind value factor. However, the demand response itself does not lead to lower CO2 emissions or reduced variation in hydropower generation.

Keywords: Demand response; Hydropower; Wind value; Thermal utilization; Emission reduction

JEL Classification: L94; C61; D22