RTP assumes that price spikes will deter load. But how will customers behave if they've hedged against that risk?
Tomorrow's electricity industry promises a wealth of pricing options as wholesale generation becomes more like a commodity. Spot pricing marks one example. And with spot markets will come a greater need for price derivatives (em hedge contracts that will permit customers to trade or shed risk to achieve a higher degree of price certainty.
This assumption poses a critical issue: How will price derivatives affect the behavior of customers who already subscribe to real-time pricing? Simple intuition would tell us that customers would turn to derivatives and hedge contracts to avoid having to curtail consumption to save costs during those periods when real-time prices spike upwards in response to market conditions. In other words, real-time pricing might fail to deter load at critical times. If that assumption should prove correct, utilities would need to take account of such behavior in their generation and transmission system planning.
Nevertheless, things aren't always what they seem.
Based on research that I have conducted at Georgia Power Co., I assert that, contrary to intuition, RTP customers will not change their usage habits simply because they have purchased a price-risk derivative contract. The analysis that follows will attempt to explain the economic logic for this seemingly counter-intuitive result.
The key lies in the fact that price derivatives focus on the average RTP price over the time period and not on specific interval prices within the time period. (This phenomenon is similar to what's referred to as an "Asian Option" in commodity futures trading.) The logic can prove daunting, however.