The Cobweb Effect in Balancing Markets with Demand Response

Emil Mahler Larsen, Pierre Pinson, Jianhui Wang, Yi Ding

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Integration of renewable energy sources (RES) like wind into the power system is a high priority in many countries, but it becomes increasingly difficult as renewables reach a significant share of generation. Demand response (DR) can potentially mitigate some of these difficulties, but the best way to control and integrate DR into the power system remains an open question. Integration into existing electricity markets is one option, but dynamic pricing with DR has been observed to be unstable, resulting in oscillations in supply and demand. This socalled Cobweb effect is presented here using the market structure and measurements from the EcoGrid EU demonstration, where five minute electricity pricing is sent to 1900 houses. A new tool for quantifying volatility is presented, and the causes for volatility are investigated. A key outcome of this study shows that increases in social welfare due to DR appear to be limited by the cost of volatility in existing market structures.
Original languageEnglish
Title of host publicationProceedings of European Electricity Market Conference 2015
Number of pages8
Publication date2015
Publication statusPublished - 2015
Event12th International Conference on the European Energy Market - Instituto Superior de Engenharia de Lisboa, Lisbon, Portugal
Duration: 20 May 201522 May 2015


Conference12th International Conference on the European Energy Market
LocationInstituto Superior de Engenharia de Lisboa


  • Demand response (DR)
  • Demand forecasting
  • Real-time pricing
  • Volatility
  • Smart grid

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