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On The Optimal Design of Demand Response Policies

Author

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  • Brown, David P.

    (University of Alberta, Department of Economics)

  • Sappington, David E. M.

    (University of Florida)

Abstract

We characterize the optimal regulatory policy to promote demand response in the electricity sector. Demand response arises when consumers reduce their purchases of electricity in times of peak demand, when the utility's marginal cost of supplying electricity is relatively high. The optimal policy differs systematically from the policy in the U.S. Federal Energy Regulatory Commission's (FERC's) Order 745. Under plausible conditions, implementation of the FERC's policy can reduce welfare substantially below the level secured by the optimal demand response policy.

Suggested Citation

  • Brown, David P. & Sappington, David E. M., 2015. "On The Optimal Design of Demand Response Policies," Working Papers 2015-3, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2015_003
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    References listed on IDEAS

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    1. David P. Brown & David E. M. Sappington, 2016. "On the optimal design of demand response policies," Journal of Regulatory Economics, Springer, vol. 49(3), pages 265-291, June.
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    Cited by:

    1. David P. Brown & David E. M. Sappington, 2017. "Optimal policies to promote efficient distributed generation of electricity," Journal of Regulatory Economics, Springer, vol. 52(2), pages 159-188, October.
    2. Tooraj Jamasb and Manuel Llorca, 2019. "Energy Systems Integration: Economics of a New Paradigm," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    3. Ren'e Aid & Dylan Possamai & Nizar Touzi, 2018. "Optimal electricity demand response contracting with responsiveness incentives," Papers 1810.09063, arXiv.org, revised May 2019.
    4. Ambler, Kate & de Brauw, Alan & Herskowitz, Sylvan & Pulido, Cristhian, 2023. "Viewpoint: Finance needs of the agricultural midstream," Food Policy, Elsevier, vol. 121(C).
    5. David P. Brown & David E. M. Sappington, 2016. "On the optimal design of demand response policies," Journal of Regulatory Economics, Springer, vol. 49(3), pages 265-291, June.
    6. Celik, Berk & Roche, Robin & Suryanarayanan, Siddharth & Bouquain, David & Miraoui, Abdellatif, 2017. "Electric energy management in residential areas through coordination of multiple smart homes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 260-275.
    7. Thakur, Jagruti & Chakraborty, Basab, 2016. "Demand side management in developing nations: A mitigating tool for energy imbalance and peak load management," Energy, Elsevier, vol. 114(C), pages 895-912.
    8. Zhang, Xiangyu & Pipattanasomporn, Manisa & Rahman, Saifur, 2017. "A self-learning algorithm for coordinated control of rooftop units in small- and medium-sized commercial buildings," Applied Energy, Elsevier, vol. 205(C), pages 1034-1049.
    9. Vij, Akshay & Ryan, Stacey & Sampson, Spring & Harris, Susan, 2020. "Consumer preferences for on-demand transport in Australia," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 823-839.

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    More about this item

    Keywords

    electricity pricing; demand response;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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