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The energy transition has shown that fossil generation can be complemented with renewable energy and other resources capable of providing flexibility to the energy system’s operation, in compliance with the wholesale electricity market’s rules. This paper proposes a market-based methodology for introducing flexible demand in the energy dispatch , optimizing the scheduling of electricity system operation in the short-term, and considers the challenge of implementing an incentive scheme for participants in demand-response programs. The scheme includes the criteria of the elasticity of substitution and a renewable energy quota. This methodology is focused on a strategic demand shift to minimize the cost of supply; increase the dispatch of renewable energy; control CO2 emissions; and satisfy the generation, demand, and transmission operating constraints. These conditions encourage the development of a simulation tool that allows a sensitivity analysis to aid decision-making by operators and agents. The proposed methodology optimizes the operational cost of generation supply and specific performance indicators to determine the percentages of demand shift, the amount of CO2 emissions, the ratio of unserved power, the demand benefits obtained from an incentive scheme, and the natural market behavior.

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The dimensions of the costs and incentives necessary for integrating demand response into the wholesale electricity market are subject to energy policies and bulk system operation. The electricity industry must gain operational flexibility to support the energy transition caused by renewable energy and decarbonization. Complementary services and technologies of demand response programs can be optimized by exploiting the variety of uses of this resource. The main objective of this work is to apply the concept of elasticity of substitution in a strategic demand shift program to promote the integration of renewable energies and the reduction of non-served power, considering an economical and safe generation dispatch. The methodology is analyzed through a case study applied in the Dominican Republic's electricity market, in which the elasticity of substitution coefficients is used to adjust variations below 10.49% of the base demand in the peak period. These variations reduce the generation operating cost by 8.4%, marginal cost by 30.19%, and non-served power by 19.1% when renewable energy increases by 5%. The inclusion of the cost of CO 2 emissions in the simulation of the operating cost function makes the objective function higher than the baseline function. For relative variations in operating cost ranging from 7.27% to 16.03%, the reduction in tons of CO 2 equivalent varies from 2.77 to 28.02. This study contextualizes the economic effect of the CO 2 emissions control, giving new possibilities to optimize system operation and the wholesale electricity market based on demand response programs that encourage flexible consumption, with favorable economic and environmental results.INDEX TERMS CO 2 emissions, demand response, the elasticity of substitution, renewable energy, wholesale electricity market.