The effect of Demand Response and wind generation on electricity investment and operation

We present a novel method of determining the contribution of load-shifting Demand Response (DR) to energy and reserve markets. We model DR in an Mixed Complementarity Problem (MCP) framework with high levels of wind penetration. Investment, exit and operational decisions are optimized simultaneously. We examine the potential for DR to participate in both energy and reserve markets. DR participation in the energy market reduces costs and prices and gives rise to lower equilibrium levels of investment in conventional generation. DR and wind generation are strongly complementary, due to the ability of DR to mitigate against the variability of wind generation, with the highest reduction of consumer costs seen at high levels of wind penetration. The total impact of DR is highly dependent on specific system characteristics.