System behaviour modelling for demand response provision in a smart grid

While pilot projects in the smart grid domain have abounded through public and private efforts, there is still uncertainty in identifying effective business models for the smart grid. In this paper we take the view of a new entrant in this market acting as a third party provider of demand response. New entrants are a key player in emerging technological domains but simulation and policy analysis from this perspective have not been forthcoming. We present a novel approach for evaluating business models within a regulatory context and avoid committing to specific technical solutions but instead embark on a parameter exploration through simple yet insightful agent-based models. Our simulations analyse the impact of system performance by three key variables; participant population size, household flexibility in terms of the maximum number of DR events allowed and size of load shifting/shedding available. The simulations indicate that benefits of avoided capital investment leads to valuing a participating household at approximately £1800 over a 20 year period. These results show how mandated infrastructure influenced by policy can affect the value proposition of a demand response service and provide a useful reference for system level parameter requirements. With weak business models, policy decisions can be crucial in providing the impetus needed to spur growth in this market.