How much should we pay for a DR program? An estimation of network and generation system benefits

Abstract

Demand Response (DR) programs allow consumers to manage their loads in response to signals that reflect –at least to some extent- the time-varying nature of the cost of electricity, improving thereby the efficiency of electricity markets. However, allowing consumers to respond also entails significant investments. Therefore, estimating the potential benefits from DR programs is essential to assess their convenience. This paper presents an assessment of the benefits of a potential DR program in Spanish households, assuming that smart meters and control devices are installed to allow for automatic response and real-time pricing is implemented. The aim of the paper is twofold: [i] to illustrate the application of simulation models to quantify the benefits from DR measures for the generation system and the distribution network, and [ii] to contribute to the understanding of the cost-benefit implications of DR programs, providing some guidance for regulation.