On the Optimal Design of Demand Response Policies

Abstract

The cost of supplying electricity can vary substantially from day to day and even from hour to hour. This is the case because generating units with relatively high operating costs often must be called upon to produce electricity during times of peak demand. In contrast to the ever-changing cost of supplying electricity, the retail price of electricity typically varies little, if at all, for long periods of time. Such time-invariant pricing reflects historic difficulty in measuring the precise time at which electricity is consumed and ongoing consumer resistance to time-sensitive pricing now that smart meters render such pricing feasible.