Demand response in electricity market

The flexibility of the system depends on the price elasticities. Demand response programs use the price elasticities in order to smooth the load curve and also increases the flexibility as well as the reliability of the system. Nordic regions have international energy exchange market (Nord pool). This market determines the clearing price after receiving the information from supply and demand sides. This study uses system price from Nord pool market and the electricity consumption from Finland to estimate the hourly price elasticities from 2013 to 2016. The project uses the system of simultaneous equations includes demand and supply sides. Two different models have been applied to estimate the price elasticities consist of TSLS and SUR procedures. On the one hand, there is some evidence support that the electricity price can be exogenous variable in the demand equation; on the other hand, the reaction of industries to the price volatilities indicates the endogenous prices. The hourly price elasticities during peak load time differ from off-peak load time. The range of the price elasticities in TSLS model is from −0.001 to −0.027. The size of price elasticities during working hours is larger than the other periods of time, therefore demand response programs would be more successful throughout the peak load time. This result can help policy makers to shift the electricity consumption from peak load time to off-peak load time