Demand response potential: An economic analysis for MIBEL and EEX

Abstract Day-ahead electricity markets were established based on the premise that short run price elasticity of demand is small, due to electricity importance, convenience and low cost. If demand respond to price signals through curtailing or shifting loads, spot prices are expected to decrease due to a more efficient market operation. This research aims to identify if there is a market design structure more suitable for Demand Response, specifically, regarding electricity markets either with or without bid caps or floor mechanisms. Results indicate that load flexibility in MIBEL would result in a larger number of hours in which is economically viable to perform demand response when comparing to EEX. Increasing flexible loads do not necessarily correspond to spot prices decrease and lower flexibility levels would produce a similar price variation. Moreover, years dominated by non-fossil technologies, negative prices, peak hours, week days and months with lower temperatures were found to decrease the economic potential. Results indicate that in during peak consumption hours the price volatility is lower, which may indicate a lower concurrency level among the generation companies. The research results contribute to improve the debate on policies, providing indications for the development of future energy market design structures.