Advance notice of real-time electricity prices

Thomas Taylor and Peter Schwarz

Atlantic Economic Journal, 2000, vol. 28, issue 4, 478-488

Abstract: Many utilities are offering real-time pricing (RTP) to their large industrial customers. Under RTP, hourly rates change with real-time supply and demand. As compared to fixed rates, RTP shifts price risk from the utility to the customer. With such a change, it is natural to ask if there is an optimal level of advance notice of prices. This paper contains a simulation of real-time rates for industrial customers with and without advance notice of prices. Advance notice is valuable to customers who can increase elasticity of substitution. This value must be weighed against the cost to the electric utility from an increase in demand forecast error. The simulation suggests that day-ahead advance notice increases welfare for reasonable magnitudes of customer elasticity and utility forecast error. Copyright International Atlantic Economic Society 2000

Date: 2000
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DOI: 10.1007/BF02298399

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