Demand side provision of peaking capacity and reserves in deregulated power systems

An unsolved problem in deregulated power systems is the long-term availability of peaking capacity. This paper proposes to utilize demand flexibility to solve the problem. It shows how various assumptions on demand elasticity affect the social welfare of load shedding. The key point is that the social cost of well prepared load shedding, based on end users´ willingness to pay can be much lower than the conventional value of lost load. The results are illustrated with an example of the Norwegian case. Finally, the paper argues that the implementation costs of using demand elasticity should be shared among all benefiting parties