How do demand response and electrical energy storage affect (the need for) a capacity market?

Agha Salman M. Khan*, Remco A. Verzijlbergh, Ozgur Can Sakinci, Laurens J. De Vries

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

44 Citations (Scopus)
20 Downloads (Pure)


To ensure security of supply and incentivize reliable investment in generation capacity, capacity markets (CMs) have been implemented or are being considered. However, demand response (DR) and electrical energy storage (EES) also contribute to system adequacy. In this paper, we analyse the change in the need for a CM if DR and EES are available, in the presence of a growing portfolio share of intermittent renewable energy sources electricity (RES-E). We present a novel hybrid electricity market model of the transition to a low-carbon electricity system which uses optimization for short-term market operations and agent-based simulation of long-term decisions. DR and EES may significantly reduce the risk of shortages in an energy-only market, even if investment decisions are myopic, like in our model, as compared to an energy-only market without flexibility options. We also present a novel mechanism for contribution of EES to the CM. This reduces the cost of the CM and improves the business case for EES. In our model, DR and EES achieve almost the same improvement of security of supply as a CM, but they do so at a lower cost. Therefore, the case for a centralized CM is weakened in a system with even a limited share of DR and medium-term EES, as presented in our model. These results depend on the duration of scarcity events and the cost of EES and DR. Refinement of the model representation will be required to extrapolate these conclusions to real markets with other types of DR, EES and CMs.

Original languageEnglish
Pages (from-to)39-62
Number of pages24
JournalApplied Energy
Publication statusPublished - 2018

Bibliographical note

Green Open Access added to TU Delft Institutional Repository ‘You share, we take care!’ – Taverne project Otherwise as indicated in the copyright section: the publisher is the copyright holder of this work and the author uses the Dutch legislation to make this work public.


  • Agent-based modelling
  • Capacity market
  • Demand response
  • Electrical energy storage
  • Optimization
  • System adequacy


Dive into the research topics of 'How do demand response and electrical energy storage affect (the need for) a capacity market?'. Together they form a unique fingerprint.

Cite this