Price-elastic demand in deregulated electricity markets

Conference · Thu May 01 04:00:00 EDT 2003

OSTI ID:815479

Siddiqui, Afzal S ^[1]

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1. LBNL Library

The degree to which any deregulated market functions efficiently often depends on the ability of market agents to respond quickly to fluctuating conditions. Many restructured electricity markets, however, experience high prices caused by supply shortages and little demand-side response. We examine the implications for market operations when a risk-averse retailer's end-use consumers are allowed to perceive real-time variations in the electricity spot price. Using a market-equilibrium model, we find that price elasticity both increases the retailers revenue risk exposure and decreases the spot price. Since the latter induces the retailer to reduce forward electricity purchases, while the former has the opposite effect, the overall impact of price responsive demand on the relative magnitudes of its risk exposure and end-user price elasticity. Nevertheless, price elasticity decreases cumulative electricity consumption. By extending the analysis to allow for early settlement of demand, we find that forward stage end-user price responsiveness decreases the electricity forward price relative to the case with price-elastic demand only in real time. Moreover, we find that only if forward stage end-user demand is price elastic will the equilibrium electricity forward price be reduced.

• Research Organization: Ernest Orlando Lawrence Berkeley National Laboratory, Berkeley, CA (US)
• Sponsoring Organization: USDOE Assistant Secretary for Energy Efficiency and Renewable Energy (US)
• DOE Contract Number: AC03-76SF00098
• OSTI ID: 815479
• Report Number(s): LBNL--51533
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
ANCILLARY SERVICES FORWARD CONTRACTS PRICE-ELASTIC DEMAND
AVAILABILITY
ELASTICITY
ELECTRICITY
MANAGEMENT
MARKET
PRICES
RETAILERS
SHORTAGES