Revenue Adequacy of Wholesale Electricity Markets with Demand Response Providers

This paper investigates the fundamental issue of revenue adequacy in wholesale day-ahead electricity markets with the presence of standalone demand response providers (DRPs). In recent years, with the increasing need for flexibility to provide sustainable electricity services, standalone DRPs have emerged as a new form of market participants. Such providers serve as intermediate between ISOs and end-users, and are awarded for the aggregated net demand change committed to ISO. Compared with conventional load serving entities, the DRPs are not responsible for providing the electricity services to consumers. This paper formulates the energy market clearing process with the presence of such DRPs. It is shown from the formulation that ISO will inevitably face revenue inadequacy with the participation of DRPs in energy markets. Such inadequacy is independent of the choice of demand response baseline. Several possible solutions to this problem are proposed. This finding could shed some lights on future policy design of demand response markets with massive level of participation.