Demand Response: smart market designs for smart consumers Nicolas Astier and Thomas-Olivier L´ eautier Toulouse School of Economics September 2015 Astier/L´ eautier (TSE) Demand Response 09/2015 1 / 16
An illuminating example of baseline inflation Astier/L´ eautier (TSE) Demand Response 09/2015 2 / 16
Introduction Demand reponse is a critical issue for power markets, following industry restructuring and entry of intermittent renewables Astier/L´ eautier (TSE) Demand Response 09/2015 3 / 16
Introduction Demand reponse is a critical issue for power markets, following industry restructuring and entry of intermittent renewables Peak Time Rebate (PTR) in day-ahead electricity markets is one approach to demand response, which appeals to market designers and policy makers Astier/L´ eautier (TSE) Demand Response 09/2015 3 / 16
Introduction Demand reponse is a critical issue for power markets, following industry restructuring and entry of intermittent renewables Peak Time Rebate (PTR) in day-ahead electricity markets is one approach to demand response, which appeals to market designers and policy makers But experience shows that, in practice, the implementation of PTR is fraught with challenges Astier/L´ eautier (TSE) Demand Response 09/2015 3 / 16
Introduction Demand reponse is a critical issue for power markets, following industry restructuring and entry of intermittent renewables Peak Time Rebate (PTR) in day-ahead electricity markets is one approach to demand response, which appeals to market designers and policy makers But experience shows that, in practice, the implementation of PTR is fraught with challenges In particular, PTR mechanisms create incentives for customers (or their demand response operator) to inflate their baseline: Astier/L´ eautier (TSE) Demand Response 09/2015 3 / 16
Introduction Demand reponse is a critical issue for power markets, following industry restructuring and entry of intermittent renewables Peak Time Rebate (PTR) in day-ahead electricity markets is one approach to demand response, which appeals to market designers and policy makers But experience shows that, in practice, the implementation of PTR is fraught with challenges In particular, PTR mechanisms create incentives for customers (or their demand response operator) to inflate their baseline: under standard ”full requirements” contracts, customers purchase (almost unlimited) power at a constant flat rate Astier/L´ eautier (TSE) Demand Response 09/2015 3 / 16
Introduction Demand reponse is a critical issue for power markets, following industry restructuring and entry of intermittent renewables Peak Time Rebate (PTR) in day-ahead electricity markets is one approach to demand response, which appeals to market designers and policy makers But experience shows that, in practice, the implementation of PTR is fraught with challenges In particular, PTR mechanisms create incentives for customers (or their demand response operator) to inflate their baseline: under standard ”full requirements” contracts, customers purchase (almost unlimited) power at a constant flat rate PTR enables customers to resell power at the spot price Astier/L´ eautier (TSE) Demand Response 09/2015 3 / 16
Introduction Demand reponse is a critical issue for power markets, following industry restructuring and entry of intermittent renewables Peak Time Rebate (PTR) in day-ahead electricity markets is one approach to demand response, which appeals to market designers and policy makers But experience shows that, in practice, the implementation of PTR is fraught with challenges In particular, PTR mechanisms create incentives for customers (or their demand response operator) to inflate their baseline: under standard ”full requirements” contracts, customers purchase (almost unlimited) power at a constant flat rate PTR enables customers to resell power at the spot price if information about baseline is asymmetric, baseline inflation ensue (Wolak, 2007) Astier/L´ eautier (TSE) Demand Response 09/2015 3 / 16
Research objective and main results Research objective: determine optimal PTR-compatible retail contracts, accounting for information asymmetry (i.e., using mechanism design) Astier/L´ eautier (TSE) Demand Response 09/2015 4 / 16
Research objective and main results Research objective: determine optimal PTR-compatible retail contracts, accounting for information asymmetry (i.e., using mechanism design) Main results Astier/L´ eautier (TSE) Demand Response 09/2015 4 / 16
Research objective and main results Research objective: determine optimal PTR-compatible retail contracts, accounting for information asymmetry (i.e., using mechanism design) Main results 1 The only Incentive Compatible (IC) PTR-compatible retail contracts have customers purchase forward their baseline Astier/L´ eautier (TSE) Demand Response 09/2015 4 / 16
Research objective and main results Research objective: determine optimal PTR-compatible retail contracts, accounting for information asymmetry (i.e., using mechanism design) Main results 1 The only Incentive Compatible (IC) PTR-compatible retail contracts have customers purchase forward their baseline 2 Customers on full requirements constant price contracts therefore have no incentive to pay a premium to enroll in PTR Astier/L´ eautier (TSE) Demand Response 09/2015 4 / 16
Research objective and main results Research objective: determine optimal PTR-compatible retail contracts, accounting for information asymmetry (i.e., using mechanism design) Main results 1 The only Incentive Compatible (IC) PTR-compatible retail contracts have customers purchase forward their baseline 2 Customers on full requirements constant price contracts therefore have no incentive to pay a premium to enroll in PTR 3 More generally, enrollment depends on (i) competitive intensity in the retail markets, and (ii) maintained subsidies to non-switchers Astier/L´ eautier (TSE) Demand Response 09/2015 4 / 16
Research objective and main results Research objective: determine optimal PTR-compatible retail contracts, accounting for information asymmetry (i.e., using mechanism design) Main results 1 The only Incentive Compatible (IC) PTR-compatible retail contracts have customers purchase forward their baseline 2 Customers on full requirements constant price contracts therefore have no incentive to pay a premium to enroll in PTR 3 More generally, enrollment depends on (i) competitive intensity in the retail markets, and (ii) maintained subsidies to non-switchers if retail competition is perfect, and subsidies not allowed, PTR converges to Real Time Pricing (RTP) and full enrollment occurs Astier/L´ eautier (TSE) Demand Response 09/2015 4 / 16
Research objective and main results Research objective: determine optimal PTR-compatible retail contracts, accounting for information asymmetry (i.e., using mechanism design) Main results 1 The only Incentive Compatible (IC) PTR-compatible retail contracts have customers purchase forward their baseline 2 Customers on full requirements constant price contracts therefore have no incentive to pay a premium to enroll in PTR 3 More generally, enrollment depends on (i) competitive intensity in the retail markets, and (ii) maintained subsidies to non-switchers if retail competition is perfect, and subsidies not allowed, PTR converges to Real Time Pricing (RTP) and full enrollment occurs otherwise, partial enrollment occurs Astier/L´ eautier (TSE) Demand Response 09/2015 4 / 16
Previous debates about PTR and literature review A false start : regulators have (surprisingly) forgotten that electricity, like any other good, must be bought before it can be sold (Chao, 2010; Hogan, 2010; Crampes and L´ eautier, 2012). Astier/L´ eautier (TSE) Demand Response 09/2015 5 / 16
Previous debates about PTR and literature review A false start : regulators have (surprisingly) forgotten that electricity, like any other good, must be bought before it can be sold (Chao, 2010; Hogan, 2010; Crampes and L´ eautier, 2012). A challenge for engineers and statisticians : accurate estimation of the baseline is everything but easy (Grimm, 2008; Newsham et al., 2011). Astier/L´ eautier (TSE) Demand Response 09/2015 5 / 16
Previous debates about PTR and literature review A false start : regulators have (surprisingly) forgotten that electricity, like any other good, must be bought before it can be sold (Chao, 2010; Hogan, 2010; Crampes and L´ eautier, 2012). A challenge for engineers and statisticians : accurate estimation of the baseline is everything but easy (Grimm, 2008; Newsham et al., 2011). Cost efficiency? : PTR may reward random shocks in consumption (Ito, 2013), decreasing its cost-effectiveness (Joskow and Marron, 1992). Astier/L´ eautier (TSE) Demand Response 09/2015 5 / 16
Recommend
More recommend
