The presence of consumers able to respond to changes in wholesale electricity prices facilitates the penetration of renewable intermittent sources of energy such as wind or sun power. We investigate how adapting demand to intermittent electricity supply by making consumers price-responsive - thanks to smart meters and home automation appliances - impacts the energy mix. We show that it almost always reduces carbon emissions. Furthermore, when consumers are not too risk-averse, demand response is socially beneficial because the loss from exposing consumers to volatile prices is more than offset by lower production and environmental costs. However, the gain is decreasing when the proportion of reactive consumers increases. Therefore, depending on the costs of the necessary smart hardware, it may be non-optimal to equip the whole population.
Electricity; Intermittency; Renewables; Dynamic pricing; Demand response; Smart meters;
- D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
- D62: Externalities
- Q41: Demand and Supply • Prices
- Q42: Alternative Energy Sources
- Q48: Government Policy
Stefan Ambec, and Claude Crampes, “Real-time electricity pricing to balance green energy intermittency”, TSE Working Paper, n. 20-1087, April 2020, revised December 2020.
Stefan Ambec, and Claude Crampes, “Real-time electricity pricing to balance green energy intermittency”, Energy Economics, vol. 94, n. 105074, February 2021.