2.1. Demand Response Program in Korea
A demand response (DR) provides an opportunity for consumers to play an important role in the operations of the electric grid by reducing or shifting their electricity usage during peak periods throughout time-based charges or other forms of financial incentives. The demand response program is being used by some electric system planners and operators as resource options for balancing supply and demand.
Currently, it forms a 4.3 GW demand response market in Korea. This compares the operation cost of an LNG power plant with a 4.3 GW scale, and the demand response has the effect of saving about 164 billion KRW from the capacity charge of an LNG power plant. Also, the demand response is more economical considering that more than 4 trillion KRW is required to build 4.3 GW power plants.
In Korea, there are two types of demand response. First, DR type I is defined as a method that contributes to supply stabilization by asking companies to reduce electricity when the power supply and demand situation changes rapidly. This is a curtailable load program. This DR type I program addresses medium and large consumers. The participants in this program receive incentives in order to turn off specific loads or even to interrupt their energy usage, responding to calls emitted by the utility. Contracts should specify the maximum number and the duration of calls. The participants can participate for a maximum of 60 h per year on weekdays and participate from 9:00 to 20:00, excluding 12:00 to 13:00. In addition, the reduction call is issued one hour in advance. This program is mandatory, i.e., customers may face penalties in case they fail to respond to a demand response event. The utility may call the consumer to respond to reliability events [
5,
6].
Second, DR type II is called a demand-side bidding program. The option of demand-side bidding provides the opportunity to consumers to actively participate in the electricity market by submitting load reduction offers. Large customers may participate in the market directly and usually employ sophisticated load management tools and strategies, while relatively small consumers can participate indirectly through third-party aggregators. This type of DR program is designed to aim at lowering the electricity market price by encouraging more customers’ involvement and making a market more competitive, so it is called an economic DR program. This program runs into the one-day-ahead market. The participation in Type II DR is possible 24 h a day, but only on weekdays. The compensation for participation is a system marginal price (SMP). The participants must participate in the reduction at a fixed time the next day, by as much as the amount that was won in the one-day-ahead market. As with DR type I, a penalty is imposed for failure to implement. The participants can participate in both DR type I and DR type II, but if a reduction call is issued at the same time, they must first participate in DR type I [
5,
6].
2.2. Economic Valuation Literature for VGI
There are a few studies on the economic analysis of VGI. In the NREL 2017 report, bulk energy storage, operating reserves, and frequency regulation were considered as use case models of V2G (Vehicle-to-Grid), and the main factors of cost and benefit for economic analysis were presented [
7]. Other research suggested regulation service as a V2G model for delivery fleets and conducted an economic analysis for this [
8]. Similar research analyzed the costs and revenues of plug-in electric vehicles using unidirectional and bidirectional V2G technologies, and the simulation results showed that electric vehicles would gain economic benefit if they participated in the grid ancillary service [
9]. Pilot studies have shown potential to support frequency regulation in the PJM market, focusing on the short response time of EVs as the main profit over traditional regulation mechanisms. The papers have estimated annual revenues ranging between USD 1200 and USD 2400 per vehicle [
10,
11]. A V2G EV school bus was economically compared with conventional diesel vehicles, showing that savings are approximately USD 230,000 per bus [
12]. A business model was analyzed using real data set in the German market for frequency regulation and evaluated to make revenues from EUR 274,992 to EUR 510,656 for 10,000 EVs [
13]. Most recently, a project for frequency regulation in Denmark showed that a single car participating in the service for 13,000 h out of two years can make an average revenue of 1860 EUR per year [
1].
For renewable energy, VGI is also considered as a way participation could stabilize power generation [
14]. In this paper, the allocation approach is proposed to maximize the annual profits by properly combining EV chargers, PV (Photovoltaic) panel location, and panel size. Another research shows that a private household with integrated PV storage is also estimated to increase net profit by 4% per year [
15]. Similarly, the VGI service for wind power smoothing is estimated [
16]. Likewise, applications for renewable energy integration with EV have begun to get attention.
Most of the research on VGI economic analysis has been focused on frequency regulation and renewable energy and limited to bulk energy storage and operating reserves [
17,
18,
19]. As a new application of VGI service, peak shaving is also being considered and the cost benefit analysis has recently begun to be studied [
20]. Like arbitrage trading in finance, an EV owner can purchase electricity from the power grid when the electricity price is low and sell it to the power grid when the electricity price is high, which leads to a peak shaving effect. Researchers analyzed the economic feasibility under the time-of-use electricity pricing scheme in a regular electricity market where the electricity price is different for peak load, basic load, and valley load.
However, in the Korean DR market, we can consider a case where a service provider could not only play a role in peak shaving but also play a role in load reduction, like a generator, inducing the effect of lowering the market price. In this respect, little research on the DR market application has been done. When the demand is expected to be so high that blackout is likely, a utility company may want to reduce the excess demand by turning off highly consuming equipment. Also, at regular times, the stored energy can be used for decreasing the system marginal price, as a generator does, when the price is high. For these two DR purposes, VGI service can be considered. Furthermore, in the VGI service for DR application, the roles of participants and their interests are very important. Depending on the financial compensation and subsidy, each stakeholder might want to participate or not. From this viewpoint, a research study investigates user acceptance of such smart charging schemes with financial compensation to improve grid stability and renewable energy integration [
21]. Reference [
20] analyzed the costs and benefits of stakeholder participating in VGI services according to battery prices and peak-time prices at a regular market. In this research, the possibility of each stakeholder’s participation in the VGI service was reviewed but Li et al. [
20] failed to consider the possibility of interaction and financial transaction that may occur among stakeholders. However, in this paper, each cost and benefit was analyzed in consideration of the interactions that may occur among utility, service provider, government, and EV owner. Among stakeholders in the VGI service, one needs to pay settlement fee and/or subsidy to the other stakeholder, such as service provider or EV owner, which implies that the relationship among participants is very important for the service’s success. Therefore, in this paper, we propose a framework that can economically evaluate businesses of all stakeholders while considering their financial relationships.
In short, unlike most of these studies, which focus only on revenue or do not consider cost-effectiveness and influence on other stakeholders, we consider demand response and stakeholders who are able to influence each other by settlement fee and subsidy. Furthermore, this study attempts to derive a scenario in which all stakeholders can succeed from the economic feasibility perspective.