On the optimal design of demand response policies

David Brown and David Sappington

Journal of Regulatory Economics, 2016, vol. 49, issue 3, No 1, 265-291

Abstract: Abstract We characterize the optimal regulatory policy to promote efficient demand response (DR) in the electricity sector. DR arises when consumers reduce their purchases of electricity below historic levels at times when the utility’s marginal cost of supplying electricity is relatively high. The US Federal Energy Regulatory Commission (FERC) advocates compensation for DR that reflects the utility’s marginal cost. We show that the optimal policy often provides less generous compensation, and demonstrate that implementation of the FERC’s policy can reduce welfare well below the level secured by the optimal DR policy.

Keywords: Electricity pricing; Demand response; Regulation (search for similar items in EconPapers)
JEL-codes: L51 L94 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Working Paper: On The Optimal Design of Demand Response Policies (2015)
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DOI: 10.1007/s11149-016-9297-3

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