The development of demand elasticity model for demand response in the retail market environment

In the context of liberalized energy market, increase in distributed generation, storage and demand response has expanded the price elasticity of demand, thus causing the addition of uncertainty to the supply-demand chain of power system. In order to cope with the challenges of demand uncertainty under the unbundled electricity market, the concept of Market-based Control Mechanism (MCM) in retail market environment has been emerging. This paper presents the concept considering demand elasticity as an opportunity in retail market environment for inventing a new bid mechanism. This work formulates demand elasticity model as a Markov decision problem and implements pursuit algorithm as a machine learning technique to evaluate the price elasticity of demand by predicting the price. The performance of the algorithm is compared with the numerical calculation of price elasticity of demand for the given simulation settings.