The role of load demand elasticity in congestion management and pricing

In the open access transmission regime, the common carrier nature of the transmission system may give rise to frequent conditions of congestion. Under such conditions, a violation of one or more physical or operational constraints in the base case or one of the contingency cases is encountered. Congestion may result in certain cases in marked price volatility and leads to price spikes. This is particularly true in competitive electricity markets that lack demand response. In this paper, we examine the role that demand responsiveness can play in competitive electricity markets. Typically, the task of congestion management and pricing is vested in the hands of an independent grid operator (IGO). The IGO uses an optimal power flow (OPF) based tool to determine the necessary actions to relieve the system of the congestion and to determine transmission system usage charges. The actions of price responsive loads may be represented in terms of the customers' willingness to pay. From each customer's demand curve, the elasticity of the load at different prices is known and the benefit function is derived. The load at each bus ceases to be a fixed quantity and becomes a decision variable for the optimization problem of the IGO. In this way, the IGO has additional degrees of freedom in determining the necessary actions to determine congestion relief. The paper investigates the impacts of load elasticity in congestion management and pricing. We analyze the salient characteristics of the optimum determined by the IGO with elastic load demand explicitly represented. We evaluate elasticity effects on consumer, producer, merchandising and social surplus. In addition, the demand responsiveness impacts on price volatility in terms of average price and standard deviation are determined and compared to the case without load responsiveness. We present numerical results on the IEEE 30-bus system. These results illustrate the increases in efficiency attainable in the presence of load responsiveness.