Benefits of implementing dynamic pricing

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Reference no: EM13983327

1. Demand-side management (DSM) can be justified by a number of reasons including_____.

a. the fact that 1 MWh of energy saved is more than 1 MWh of electricity produced.

b. because of low technical efficiency of the conversion process, the pressure on resource reqirement is reduced through demand reduction.

c. DSM imporves the utilization of the available infrastructure and reduces congestion

d. all of the above

2. The attributes of electricity markets include____.

a. the demand or load for electricity is highly variable

b. large scale physical inventories are generally available

c. supply and demand don't need to be balanced continuously

d. all of the above

3. As electricity demand increases, generating capacity is called to balance supply and demand in the order of____.

a. decreasing marginal generating cost

b. base - intermediate - peak load plants

c. peak - intermediate - base load plants

d. depending on wholesale market prices

4. In theory, the benefits of implementing dynamic pricing (or time-varying price) in electricity markets include:

a. increases consumption during off-peak hours and reduces associated deadweight losses

b. provides price signal to reduce peak hour usage

c. fewer peak plants need to be built to satisfy peak hour demand

d. all of the above

5. Using a simulation model of PJM market, Holland and Mansure (2006) simulates short run effects of time varying prices on retail market prices. The table below includes the statistics of hourly real-time price for given percentage of consumers adopting time varying prices (α in the first column). We can see that

Panel C: Hourly real-time prices
α	Mean	std. dev.	min	max
0%	$65.20	$17.89	$54.91	$1,039.00
33%	$64.95	$9.84	$54.92	$164.01
67%	$64.90	$9.49	$55.24	$154.37
100%	$64.84	$9.11	$55.27	$151.39

a. Average real time prices falls as more consumers adopt real-time pricing (RTP)

b. Maximum real time price falls as more consumers adopt RTP

c. Minimum price increases slightly as more customers adopt RTP

d. All of the above

Short Answer

6. For a small local electricity market, the peak demand is P_P = 125 - D_p and the off-peak demand is P_op = 25 - 4D_op, where the prices are measnured in $ per kWh and D is the average demand measured in kW. The total installed capacity is 25 kW. We assume a constant marginal production cost of $5/kWh.

(i) Determine the equilibrium price and quantity for off-peak and peak periods if two different prices in both periods are allowed.

(ii) Assume a single pricing scheme imposed at P' = 15, what are the equilibrium prices and quantities demanded?

(iii) What is the Deadweight Loss (DWL) associated with the increasing demand during off-peak hours?

(iv) Assume that extra power plants are built to satisfy the increasing peak demand quantified in (ii), what is the associated DWL?

7. Read Joskow and Wolfram (2012) and answer the following questions:

(1) List three reasons why the marginla cost of electricity varies widely over time.

(2) List three developments over the last decade in the U.S. electricity sector that have elevated interest in dynamic pricing.

(3) Based on the discussion in the paper, how to understand the redistribution impact of switching from flat rate to dynamic price scheme?

Reference article -

1. Dynamic Pricing of Electricity

By Paul L. Joskow and Catherine D. Wolfram*

American Economic Review: Papers & Proceedings 2012, 102(3):381-385

https://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.381

2. Gasoline Demand Estimation

Reference: Hughes, Knittel, and Sperling (2008) "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline

Demand." Energy Journal 29(1): 113-134.

3. Demand Side Management and Dynamic Pricing

References: Bhattacharyya Ch. 6.2, Borenstein (2010), Joskow (2012), Faruqui and Sergici (2010), Griffin an Puller (2009), Holland and Mansur (2006)

Reference no: EM13983327

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