When you sell demand response back to the grid, how much capacity are you now not buying?
When customers sell demand response into a regional capacity market (such as PJM’s Reliability Pricing Model, known as the RPM), how much credit should they earn for agreeing to curtail demand and alleviating stress on the grid — that is, for reducing the market’s need for generating capability and capacity reserve margin? And further, should the amount of credit depend on whether the customer works with market aggregators, known both as CSPs (“Curtailment Service Providers”) or ARCs (“Aggregators of Retail Customers”)? One view would pay customers for the full extent of their curtailment of demand — known as its “Guaranteed Load Drop” (GLD). The other would limit capacity credit to the customer’s prior load history — “Peak Load Contribution,” or PLC. The answer may well dictate whether regulators continue to treat “energy” and “capacity” as two distinct concepts.
The diversity in customers’ appetites should be considered by more utilities when pricing products.
Does the volatility of the customer’s energy cost create much concern regarding the impact on the customer’s core business? One customer may be very comfortable taking on significant electricity cost risk to obtain electricity price and subsequent bill concessions. Another may be willing and anxious to pay a premium to accept less electricity cost risk than normal. Both of these customers, and all the customers in between, should be offered products that fit their needs, and these products should be priced upon sound risk fundamentals.
Two-part real-time pricing reflects the two-part pricing found in other business sectors.
Georgia Power Co., Duke Power Co., and their customers have reaped the benefits of two-part real-time pricing (RTP) for nearly 10 years. This structure has been a perfectly acceptable and efficient means to price electricity, but a second structure for pricing electricity can now be introduced. Either structure is sound and efficacious. Each methodology has its advantages, and utilities should consider which method best serves their needs.
Real-time pricing has been hindered by the misperception that a shift to RTP will create new types of risks, without creating benefits for utilities or customers.
Ahmad Faruqui and Melanie Mauldin
Nainish K. Gupta and Albert L. Danielsen
Evidence suggests a decision point at 6 cents per kWh, indicating that self-generation becomes a highly viable option at that price
WHAT ROLE SHOULD REAL-TIME PRICING play in a deregulated electricity market? Can it serve as an incentive to induce customers to remain loyal to their power supplier? How do customers respond to price changes carried out under RTP tariffs?
Real-time pricing programs are now being used as a proxy for market-based pricing.
Phil Hanser, Jose Wharton, and Peter Fox-Penner
The electric industry hasn't seen so much upheaval since Thomas Edison threw the switch at the Pearl Street Station. Full retail access to competitive markets in generation and supply will challenge traditional ways of doing business. But no change will prove more dramatic for electric utilities than setting a competitive price (em that most fundamental of business decisions.
In anticipation of competition, utilities have been experimenting to discern what forms of the "product" (em electric power (em customers might want, and at what prices. One such experiment is real-time pricing.