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PESD Studies the Active Participation of Final Consumers in Wholesale Electricity Markets

A linchpin of electricity sector restructuring around the world has been the creation of wholesale markets where privately-owned firms compete to supply electricity to consumers. Even though the private generators rarely have a direct relationship with the energy end-users (the local utility, independent system operator, and other regulators stand in between), a growing body of research shows that the active participation of final consumers in wholesale markets is a key factor in the success of such reforms. The appropriate mix of energy efficiency and energy storage investments, dynamic pricing programs, and energy management technologies can enable such consumer participation in order to ensure they benefit from reforms.  
 
PESD researchers have undertaken a number of projects aimed at determining the most cost-effective ways to deploy these technologies and pricing policies.  The primary goal of this research effort is to provide data and recommendations that help policymakers to efficiently involve electricity consumers in wholesale markets so that they receive more reliable, better-quality energy services at a lower cost.  Some of our results and recommendations are highlighted in the following papers:
 
How Do Customers Utilitize Real-Time Usage Feedback? Evidence from Singapore (2014): Explores the impact of providing a household with real-time feedback on its energy use. Initial results strongly support more widespread use of real-time customer feedback technologies as a cost effective strategy for meeting residential electricity demand.
 
Using Information to Improve the Effectiveness of Nonlinear Pricing: Evidence from a Field Experiment (2013): Two field experiments in California that showed how consumers reduced their energy use in response to relatively simple information about how they could lower monthly electricity bills. The results emphasize the need to provide timely and actionable information to consumers in order to maximize the effectiveness of nonlinear pricing. The effect proved to be durable, with customers who changed their electricity use patterns in 2011 still showing lower electricity use three years later. 
 
Do Residential Customers Respond to Hourly Prices? Evidence from a Dynamic Pricing Experiment (2011): An experiment in the context of a Washington DC program that investigated the impacts of a variety of dynamic pricing programs and smart meter technologies on household electricity consumption. The results rebut the common complaint that the “cost of taking action” for consumers that are billed electricity prices that vary by the hour is greater than the derived benefits from such a pricing mechanism. 
 
An Experimental Comparison of Critical Peak and Hourly Pricing: The PowerCentsDC Program (2010): A study comparing the performance of three popular electricity pricing programs – hourly pricing, critical peak pricing, and critical peak-pricing with a rebate. One important result is that dynamic pricing programs such as critical peak pricing (CPP) are more effective at reducing demand than dynamic pricing program that pay customers rebates for demand reductions relative to a reference level of consumption because of what study calls the “option to quit” that dynamic pricing rebate customers have relative to customers on CPP plans.
 
When It Comes to Demand Response, Is FERC Its Own Worst Enemy? (2009): Commentary on the unrealized potential for electricity end-users to be full participants in wholesale electricity markets. The paper highlights problems with the traditional “demand response” paradigm and contrasts it with a more developed dynamic pricing approach (which reflects varying system conditions over time and locations), arguing that is the path to realizing the full benefits of active participation of final consumers in the wholesale market. 
 
Residential Customer Response to Real-Time Pricing: The Anaheim Critical-Peak Pricing Experiment (2006): An analysis of a critical peak pricing experiment, which finds that customers on such a pricing scheme use significantly less electricity during peak times of the day, along with a discussion of the difficulties of implementing such a mechanism as the default price program for residential customers. 
 
Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices (1997): A framework for estimating the demand of commercial and industrial electricity customers that purchase electricity based on half-hour energy prices that vary based on the real-time electricity wholesale market in England and Wales. 
 

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