Controlling market power of vertically integrated firms in electricity networks: Demand response of aggregator agents

This article reports the results of an experiment that examined how demand aggregators can discipline vertically-integrated firms — generator and distributor-retailer holdings-, which have a high share in wholesale electricity market with uniform price double auction (UPDA). We initially develop a treatment where holding members redistribute the profit based on the imposition of supra-competitive prices, in equal proportions (50%–50%). Subsequently, we introduce a vertical disintegration (unbundling) treatment with holding´s information sharing, where profits are distributed according to market outcomes. Finally, a third treatment is performed to introduce two active demand aggregators, with flexible interruptible loads in real time. We found that the introduction of responsive demand aggregators neutralizes the power market and increases market efficiency, even beyond what is achieved through vertical disintegration.