On The Optimal Design of Demand Response Policies

David Brown and David Sappington

No 2015-3, Working Papers from University of Alberta, Department of Economics

Abstract: We characterize the optimal regulatory policy to promote demand response in the electricity sector. Demand response arises when consumers reduce their purchases of electricity in times of peak demand, when the utility's marginal cost of supplying electricity is relatively high. The optimal policy differs systematically from the policy in the U.S. Federal Energy Regulatory Commission's (FERC's) Order 745. Under plausible conditions, implementation of the FERC's policy can reduce welfare substantially below the level secured by the optimal demand response policy.

Keywords: electricity pricing; demand response (search for similar items in EconPapers)
JEL-codes: L11 L50 L94 Q40 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2015-03-01
New Economics Papers: this item is included in nep-ene, nep-ind and nep-reg
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Citations: View citations in EconPapers (3)

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Journal Article: On the optimal design of demand response policies (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2015_003

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