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Dynamic Pricing, Advance Meter & Demand Response in Electricity Markets
Severin Borenstein, Michael Jaske, Arthur Rosenfeld

In this monograph, the authors present an overview and analysis of the possible approaches to bringing an active demand side into electricity markets. In section I, they describe the ways in which economic incentives can be introduced on the demand side. They discuss the fundamental economics of establishing these incentives and the economic loss from systems that lack demand-side participation, and analyze the effect of these incentives on the efficiency and competitiveness of the market. In section II, they move from the fundamentals to specific issues of implementing time-varying prices. Then, they begin by describing illustrative Realtime Pricing and Critical Peak Pricing tariffs that are in use today. The authors then address the actual development of dynamic retail prices. In section III, they examine the ways in which customers respond to time-varying and dynamic prices. They discuss both the potential responses that are envisioned by those who study optimization of power use and the actual responses that have taken place in pilot and long-term programs. Finally, they conclude in section IV by advocating much wider use of dynamic retail pricing, under which prices faced by end-use customers can be adjusted frequently and on short notice to reflect changes in wholesale prices and the supply/demand balance.

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