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The Short-Run Effects of Time-Varying Prices in Competitive Electricity Markets

Stephen P. Holland and Erin T. Mansur

Year: 2006
Volume: Volume 27
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No4-6
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Abstract:
We analyze the efficiency, distributional, and environmental effects of real-time pricing (RTP) adoption in the short run. Consistent with theory, our simulations of the PJM electricity market show that RTP adoption improves efficiency and compresses the distributions of loads and prices. Adoption increases average load but decreases operating profits with the largest decrease for oil-fired generation (59% when all customers adopt). Consumer surplus and welfare gains are modest (2.5% and 0.24% of the energy bill), and emissions of SO2 and NOx increase but CO2 emissions decrease. Approximately 30% of these efficiency gains could be captured by varying flat rates monthly instead of annually. Monthly flat rate adjustment has many of the same effects as RTP adoption, captures more of the deadweight loss than time of use (TOU) rates, and requires no new metering technology.



Impacts of Responsive Load in PJM: Load Shifting and Real Time Pricing

Kathleen Spees and Lester Lave

Year: 2008
Volume: Volume 29
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No2-6
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Abstract:
Load Shifting and Real Time Pricing Kathleen Spees* and Lester Lave** In PJM, 15% of electric generation capacity ran less than 96 hours, 1.1% of the time, over 2006. If retail prices reflected hourly wholesale market prices, customers would shift consumption away from peak hours and installed capacity could drop. We use PJM data to estimate consumer and producer savings from a change toward real-time pricing (RTP) or time-of-use (TOU) pricing. Surprisingly, neither RTP nor TOU has much effect on average price under plausible short-term consumer responses. Consumer plus producer surplus rises 2.8%-4.4% with RTP and 0.6%-1.0% with TOU. Peak capacity savings are seven times larger with RTP. Peak load drops by 10.4%-17.7% with RTP and only 1.1%-2.4% with TOU. Half of all possible customer savings from load shifting are obtained by shifting only 1.7% of all MWh to another time of day, indicating that only the largest customers need be responsive to get the majority of the short-run savings.





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