Demand trading is a critical element in the success of open, competitive, retail energy markets, but there are certain rules that should be followed.
Dr. William M. Smith is the manager, market‑driven load management, at EPRI. During his 16 years at EPRI, he has managed a diverse set of technical activities, including demand‑side planning, power electronics and controls, and industrial partnerships. Joel S. Gilbert is the CEO of both APOGEE Interactive Inc., and its wholly owned subsidiary, the Demand Exchange, the largest Internet aggregator of voluntary demand response capability in the U.S. Paul Meagher is director, international products, at EPRI Worldwide. His responsibilities focus on the development and management of products and services that meet the needs of EPRI's expanding global client base. He has earned engineering degrees from Rensselaer Polytechnic Institute, MIT, and Stanford University.
The advent of deregulated wholesale electricity markets and the penetration of market forces into retail electricity markets have enormously enlarged the set of opportunities for lucrative financial gains. One of these opportunities is demand trading, which represents a key tool that can advance one of deregulation's principal goals-customer choice. Customer choice, in this setting, goes beyond simply being able to choose among different suppliers; it provides customers the means to reduce their energy costs by bidding their ability to change their electricity demand characteristics into energy markets as an alternative to supply. This offers customers a proactive role in energy markets and provides a greater ability to affect the ultimate economic variable in competitive markets-price.
Everyone knows the basic law of supply and demand. When supply increases (at any given demand level), prices eventually fall and demand increases to intersect at the new point of equilibrium. When supply decreases, prices rise. Despite the fact that regulatory models and other factors have inhibited the transfer of price signals to electricity customers, when given the proper price signals, customers can-and do-change their electricity buying habits. This is the basis for demand response programs.