Advance notice of real-time electricity prices

Many utilities are offering real-time pricing (RTP) to their large industrial customers. Under RTP, hourly rates change with real-time supply and demand. As compared to fixed rates, RTP shifts price risk from the utility to the customer. With such a change, it is natural to ask if there is an optima...

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Bibliographic Details
Published in:Atlantic economic journal 2000-12, Vol.28 (4), p.478-488
Main Authors: Schwarz, Peter, Taylor, Thomas
Format: Article
Language:English
Subjects:
Economic theory
Electric utilities
Prices
Prices and rates
Pricing policies
Simulation
Studies
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Summary:Many utilities are offering real-time pricing (RTP) to their large industrial customers. Under RTP, hourly rates change with real-time supply and demand. As compared to fixed rates, RTP shifts price risk from the utility to the customer. With such a change, it is natural to ask if there is an optimal level of advance notice of prices. This paper contains a simulation of real-time rates for industrial customers with and without advance notice of prices. Advance notice is valuable to customers who can increase elasticity of substitution. This value must be weighed against the cost to the electric utility from an increase in demand forecast error. The simulation suggests that day-ahead advance notice increases welfare fore reasonable magnitudes of customer elasticity and utility forecast error.
ISSN:0197-4254
1573-9678
DOI:10.1007/BF02298399