A Co-optimised framework for combined electricity and emission markets with coordinated demand response and ancillary Services: A case study of the Thai power system

Abstract

Due to Thailand's electricity market shifting towards a low-carbon, decentralised future, an urgent need arises for integrated operational frameworks that co-optimise energy, reserves, environmental externalities, and demand-side flexibility. This paper introduces a novel market-clearing model designed explicitly for this transition. The proposed framework incorporates carbon pricing, ancillary services (AGC and SR), and an incentive-based demand response (DR) mechanism. The model supports sequential and integrated clearing strategies, uniquely allowing uncalled DR to serve as reserve capacity. The simulations reveal significant benefits of the proposed framework with the application to the IEEE 30-bus test and the 160-bus equivalent Thai power systems. Under varying carbon tax rates, DR incentive levels, and generator shortage conditions, the integrated DR scenario achieves up to 6.1 % cost savings. It substantially reduces reserve procurement costs compared to conventional generation-only cases. Crucially, utilising DR as a co-optimised reserve resource improves system adaptability without increasing emissions. These findings offer vital insights for Thailand's scalable and policy-relevant market design. The proposed framework presents a practical pathway toward economically efficient and environmentally sustainable power system operations by internalising carbon costs and leveraging flexible demand.