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An integrated model for assessing electricity retailer’s profitability with demand response

Dagoumas, Athanasios S., Polemis, Michael L.
Applied energy 2017 v.198 pp. 49-64
consumers (people), demand elasticities, econometric models, electricity, evolution, income, issues and policy, markets, prices, profitability, risk, tariffs, viability
This paper introduces a model that integrates a Unit Commitment (UC) model, which performs the simulation of the day-ahead electricity market, combined with an econometric model that estimates the income and price elasticities of electricity demand. The integrated model is further extended to estimate the retailers’ profitability with demand responsive consumers. The applicability of the proposed model is illustrated in the Greek day-ahead electricity market. The model is designed to identify the effects of demand responsiveness to the fluctuations of spot prices, based on their short-term price elasticities. It provides price signals on the profitability of retailers/demand aggregators, when forming their tariffs. We argue that the non-linearity between demand response and evolution of wholesale price, inherits risk for retailers. This finding could lead even to losses for some time periods, affecting strongly their viability. The model provides useful insights into the risk of retailers from their price responsive customers and therefore acts as a pivotal study to policy makers and government officials (i.e. regulators, transmission and distribution system operators) active in the electricity market.