Impact of Demand Response on the Risk Profile of Electricity Retailers in North-European Electricity Market

Abstract

Large scale Demand Response (DR) has different impacts on different market actors. The impacts depend significantly on the market actor and the operational environment. The impacts of DR on electricity retailers (ER) in the North-European electricity market are discussed in this paper. DR is a double-edged sword for an ER. On one hand, DR offers a potential tool to improve the operation in the electricity market, but on the other hand, DR poses also risks to the ER. The impacts of DR on ERs depend on many things like the nature of the controllable demand, the characteristics and the rules of the market place in which DR is being operated and the structure and the nature of the electricity contracts made with the customers. These things are discussed in depth in this paper. A case study is presented related to DR based on day-ahead area prices in Finland. The case study shows that on average, the imbalance costs induced by DR to the retailer can even be positive (positive cash flow), but the risk of significant additional costs remain and might even be increasing.