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Thermostats for the Smart Grid: Models, Benchmarks, and Insights

We model two existing thermostats and one novel thermostat to see how well they operate under dynamic pricing. The existing thermostats include a traditional thermostat with set temperature goals and a rigid thermostat that minimizes cost while always keeping temperature within a rigid predetermined range. We contrast both with a novel optimizing thermostat that finds the optimal trade-off between comfort and cost. We compare the thermostats’ performance both theoretically and via numerical simulations. The simulations show that, under plausible assumptions, the optimizing thermostat’s advantage is economically large. Importantly, the electricity demand of the rigid thermostat (but not the optimizing thermostat) ceases to respond to electricity prices on precisely the days when the electricity grid tends to be near capacity. These are the times when demand response is the most socially valuable to avoid massive price spikes. The social benefits of the optimizing thermostat may provide incentives for utilities and regulators to encourage its adoption. Keywords: Thermostat, Smart Grid, Dynamic Pricing, Optimization, Demand Response

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Markets and Prices ; Electricity – R&D and Emerging Technologies; Electricity – Policy and Regulation

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D42 - Market Structure, Pricing, and Design: Monopoly
O32 - Management of Technological Innovation and R&D
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

DOI: 10.5547/01956574.33.4.4

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Published in Volume 33, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.