Demand response, market design and risk: A literature review

Different market designs may create distortions on spot pricing equilibrium, thus providing different signals for market agents and investment decisions on new generation assets. Also, demand flexibility market value may differ according to market characteristics. This paper aims to study the demand response (DR) – market design – risk nexus. According to our findings, despite the design differences among MIBEL, EEX and Nord Pool, some variables are common to all while those associated with risk premia might differ. This is due to the mismatch between the specific market structure characteristics and premises, particularly in what concerns the supply generation portfolio composition in the day-ahead markets. •Different market designs may create distortions concerning pricing equilibrium.•Seasonality and inconstant demand are associated with risk premia in all markets.•Other variables were found to be related to risk premia in different market structures.•A critical survey of the literature that supports the debate on Demand Response – Market Design - Risk nexus is presented.