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Integrating Short-term Demand Response into Long-Term Investment Planning / Cedric De Jonghe, Benjamin F. Hobbs and Ronnie Belmans. Cambridge : Electricity Policy Research Group, 2011, 47 p. (EPRG1113)http://www.eprg.group.cam.ac.uk/wp-content/uploads/2011/03/EPRG-WP-1113.pdfAbstract:Planning models have been used for many years to optimize generation  investments in electric power systems. More recently, these models have  been extended in order to treat demand-side management on an equal  footing. This paper stresses the importance of integrating short-term  demand response to time-varying prices into those investment models.  Three different methodologies are suggested to integrate short-term  responsiveness into a long-term model assuming that consumer response  can be modelled using price-elastic demand and that generators behave  competitively. First, numerical results show that considering  operational constraints in an investment model results in less  inflexible base load capacity and more mid-range capacity that has  higher ramp rates. Then, own-price and cross-price elasticities are  included in order to incorporate consumers’ willingness to adjust the  demand profile in response to price changes. Whereas own-price  elasticities account for immediate response to price signals,  cross-price elasticities account for shifting loads to other periods. As  energy efficiency programs sponsored by governments or utilities also  influence the load profile, the interaction of energy efficiency  expenditures and demand response is also modelled. In particular,  reduced responsiveness to prices can be a side effect when consumers  have become more energy efficient. Comparison of model results for a  single year optimization with and without demand response shows the peak  reduction and valley filling effects of response to real-time prices  for an illustrative example with a large amount of wind power  injections. Additionally, increasing demand elasticity increases the  optimal amount of installed wind power capacity. This suggests that  demand-side management can result in environmental benefits not only  through reducing energy use, but also by facilitating integration of  renewable energy (© EPRG)