Serie R: Residential demand response: financial compensation from capacity markets

The report "Residential demand response: financial compensation from capacity markets" has been published in Novia's Publications and Productions, series: Reports 9/2025 in November 2025.

Motivation and participation

Reliable electricity transmission requires supply and demand to be in constant balance. Satisfying this balance for a commodity that is difficult to store, like electricity, is quite a challenge. Especially so, when considering that we are all free to use electricity as we please and that any power plant or interlink to a neighboring country may fail at any time, thus causing a large deficit or surplus. The converged-upon solution for managing this delicate balancing act is to utilize trade on sequential electricity markets, with the intent of aligning supply and demand as well as possible before the time of delivery.

The increasing share of renewable energy sources, like wind and solar, is nonetheless causing significant supply fluctuations that require additional green flexibility to help align supply and demand. Residential demand response provides one such source of additional flexibility, where households shift consumption in response to financial incentives to help keep the balance. Here, we will briefly go over the structure of the sequential electricity markets and investigate what the size of this financial compensation could be for one of the markets, namely the reserve market.

Information about the publication

Katariina Rantanen & Johan Westö, Yrkeshögskolan Novia
Residential demand response: financial compensation from capacity markets

Publisher: Novia University of Applied Sciences, Wolffskavägen 35 B, 65200 Vasa, Finland
© Novia University of Applied Sciences and Rantanen & Westö

Novia Publications and Productions, series R: Reports 9/2025

ISBN: 978-952-7526-60-6 (Online)
ISSN: 1799-4179

Layout: Johan Westö

CC BY 4.0