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The distinct contribution of this thesis to the main body of knowledge can be summarised asto propose a new market for trading DR and to develop methodologies for designing and analysing such a market. This innovation comprises the following points.

6.2.1 Constructing a public view of DR

The research project reported in this thesis was initiated from a simple but very intersting idea that DR can be viewed as a type of public good, in the sense that a given DR quantity is jointly utilized by multiple players. In microeconomics, public good is formally defined as good being non–rival and non–excludable. Non–rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non–excludability means that no one can be effectively excluded from using the good. Both of these properties are found to be approximately met by DR. For example, when a Transco buys a DR quantity from an individual customer, there are always a Disco and a Reco freely benefiting this quantity because their businesses still involve the customer, i.e., via network connection and retail contract. In addition to this non–rivalry, it is physically impossible to reject those third parties from utilizing the quantity, implicating the non– excludable property of DR.

The theory of public good often relates to the theory of market failure, and in this sense DR is not an exception. One can easily see the evidence of market failure in any existing DR scheduling/trading schemes as they fail to correctly value DR quantities provided by individual customers, leading to an inefficient allocation of this resource. Such a discovery was central to the preliminary analysis in our research project. In fact, we are not aware of any published work presenting this interesting idea.

Major contributions

6.2.2 The DRX concept

This concept is the first and most important proposal given in this thesis. It is considered an abstract solution to the problem of market failure associated with DR as a public good. In particular, those players providing DR (i.e., customers via ESCos) are placed on one side of the market and those demanding DR (i.e., Transcos, Discos, and Recos) are put on the other side. This arrangement facilitates significant market design and analysis to deal with the public good issue. In proposing this concept, we expected that a well–organized and competitive market for trading DR can thoroughly eliminate all relevant inefficiencies. Again, no such concept was found in the literature.

We should point out that the DRX concept itself is a natural implication following the market failure found in the existing DR schemes, and thus it should not be viewed as being controversial. While one may argue that implementing a new market which requires significant invesment is not a readily feasible task, we believe that the long–term benefit created from that market would be sufficient to offset the invesment cost. In this regard, our concept is not merely of academic interest but also a good solution to the problem of DR scheduling from a practical point of view.

6.2.3 Market clearing mechanisms

Since much has been written throughout this thesis about the development of these DRX mechanisms, here we discuss only their innovative aspects from an analytical pespective. The most interesting, and perhaps surprising, thing is that we were able to design a market with the presence of public good. To our knowledge, there is no such market well–developed for the competitive trading of such good (other than DR) in the current practice. What people often do is purchase those public goods (i.e., national defense, fresh air, common lands, rivers, etc.) under government control through the use of taxation.

The challenge in developing a competitive market for public good lies in its fundamental non–rivary and non–excludibility that are also called non–linearity in engineering language. Due to these inherent characteristics, it is difficult to separate the allocation of public good between participants and then to correctly determine payment for/by each of them. This issue has been implicitly resolved in our DRX work using different approaches resulting in different types of market clearing mechanisms, namely pool–based and agent–based.

Based on this discussion, we suggest that our DRX proposal for a public goods market clearing scheme makes a good contribution to the field of microeconomics.We also believe that the analytical models developed in this thesis for competitive trading of DR can also be applied to trading other public goods, as long as they are not under government control. In fact, these models are generic in the sense that they involve multiple buyers, multiple sellers, and multiple products or quantities (i.e., an “exchange economy”). Note also that

such DRX models did not make any assumptions beyond those common in microeconomics, such as the preference convexity made in Chapter 4 for proving both the existence and the uniqueness of Walrasian market equilibrium.

6.2.4 Comprehensive cost–benefit assessment

The assessment work presented in Chapter 5 has significant implication as it establishes a good connection between the conventional power system analysis methods (i.e., reliability assessment, electricity spot pricing, etc.) and the DRX and other DR scheduling models. This explicit connection makes our proposal easily accessable for general power engineers, who might have only a little economic background and are not always convinced by theo- ritical economic arguments. In fact, the proposed cost–benefit assessment framework have brought our concept and models “down to earth” in the sense that it validates assumptions and approximations resulting from the DRX development.

In addition to supporting DRX, the framework is a useful offline tool to analyse eco- nomic benefits for various categories of DR–involved players. It is also necessary for testing the impact, on the DR scheduling outcome, of various market–related issues such as reg- ulation, policy development, and risk management. The main advantage of the proposed framework is that the economic effects of DR on all market participants are considered together so a comprehensive estimate of the DR benefits can be obtained. We are not aware of any similar approach with ours, in the literature.