- Volume 16 Issue 1
When the margin between available capacity and demand is thin in a liberalized electricity market, prices rise steeply and system reliability is threatened. The principal response to these circumstances is often an assumption that price spikes and electricity shortages are the result of a failure to build sufficient new supplying facilities. It is, of course, often the case that additional investments in generation and network facilities would improve reliability, and such investments are often needed. But focusing on additional generation and transmission facilities for restoring balance to the grid overlooks the essential fact that reliability is a function of the relationship between supply and demand, imposing unnecessary costs on electric system. When the relationship is out of balance, the search for solutions must consider not only investments supply-side resources but also cost-effective demand-side resources such as accelerated load management, efficiency measures, and price-responsive load programs. Integrating demand resources into electricity markets can add enormous value to the electric system, widening the capacity margin, lowering costs and enhancing system reliability at the same time. This paper studies several challenges now facing electricity markets: demand-side management-especially, economic effects of demand response, potential reliability problems, market and system operation, CBP market improvements and so on. The paper concludes with a series of policy recommendations in five areas: (i) The Effects of efficient improvement to incorporate demand responses and demand-side resources into modem electricity markets, (ii) Fosteing price based demand response and (iii) improving incentive based demand response, (iv) strengthen demand response analysis and valuation, (v) integrating demand response into resource planning and adopting enabling technologies.