Analyzing PJM's economic demand response program

Rahul Walawalkar, Seth Adam Blumsack, Jay Apt, Stephen Fernands

Research output: Chapter in Book/Report/Conference proceedingConference contribution

17 Citations (Scopus)

Abstract

We analyze the economic properties of the economic demand response program in the PJM electricity market. The original program provided subsidies and side payments to customers who agreed to reduce load in a given hour. The program featured a price level or "trigger point," set at $75/MWh, at or beyond which incentive payments for load reduction were made available. No incentives were available when market prices were below the trigger point. Particularly during peak hours, such a program does save money for the system, but the subsidies involved introduce distortions into the market. We simulate demand-side bidding into the PJM market during 2006, and compare the social welfare gains with the subsidies paid to price-responsive load. We find that the largest economic effect arises through wealth transfers from generators to non price-responsive loads. Based on the incentive payment structure that was in effect through the end of 2007, we estimate that the social welfare gains exceed the distortions introduced by the subsidies. Lowering the "trigger point" increases the transfer from generators to consumers, but may result in the subsidy outweighing the social welfare gains due to load curtailment.

Original languageEnglish (US)
Title of host publicationIEEE Power and Energy Society 2008 General Meeting
Subtitle of host publicationConversion and Delivery of Electrical Energy in the 21st Century, PES
DOIs
StatePublished - Sep 29 2008
EventIEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES - Pittsburgh, PA, United States
Duration: Jul 20 2008Jul 24 2008

Publication series

NameIEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES

Other

OtherIEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES
CountryUnited States
CityPittsburgh, PA
Period7/20/087/24/08

Fingerprint

Economic and social effects
Economics
Power markets

All Science Journal Classification (ASJC) codes

  • Energy Engineering and Power Technology
  • Electrical and Electronic Engineering

Cite this

Walawalkar, R., Blumsack, S. A., Apt, J., & Fernands, S. (2008). Analyzing PJM's economic demand response program. In IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES [4596905] (IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES). https://doi.org/10.1109/PES.2008.4596905
Walawalkar, Rahul ; Blumsack, Seth Adam ; Apt, Jay ; Fernands, Stephen. / Analyzing PJM's economic demand response program. IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES. 2008. (IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES).
@inproceedings{0bd7b38c639c43c593732832bce917b3,
title = "Analyzing PJM's economic demand response program",
abstract = "We analyze the economic properties of the economic demand response program in the PJM electricity market. The original program provided subsidies and side payments to customers who agreed to reduce load in a given hour. The program featured a price level or {"}trigger point,{"} set at $75/MWh, at or beyond which incentive payments for load reduction were made available. No incentives were available when market prices were below the trigger point. Particularly during peak hours, such a program does save money for the system, but the subsidies involved introduce distortions into the market. We simulate demand-side bidding into the PJM market during 2006, and compare the social welfare gains with the subsidies paid to price-responsive load. We find that the largest economic effect arises through wealth transfers from generators to non price-responsive loads. Based on the incentive payment structure that was in effect through the end of 2007, we estimate that the social welfare gains exceed the distortions introduced by the subsidies. Lowering the {"}trigger point{"} increases the transfer from generators to consumers, but may result in the subsidy outweighing the social welfare gains due to load curtailment.",
author = "Rahul Walawalkar and Blumsack, {Seth Adam} and Jay Apt and Stephen Fernands",
year = "2008",
month = "9",
day = "29",
doi = "10.1109/PES.2008.4596905",
language = "English (US)",
isbn = "9781424419067",
series = "IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES",
booktitle = "IEEE Power and Energy Society 2008 General Meeting",

}

Walawalkar, R, Blumsack, SA, Apt, J & Fernands, S 2008, Analyzing PJM's economic demand response program. in IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES., 4596905, IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES, IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES, Pittsburgh, PA, United States, 7/20/08. https://doi.org/10.1109/PES.2008.4596905

Analyzing PJM's economic demand response program. / Walawalkar, Rahul; Blumsack, Seth Adam; Apt, Jay; Fernands, Stephen.

IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES. 2008. 4596905 (IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES).

Research output: Chapter in Book/Report/Conference proceedingConference contribution

TY - GEN

T1 - Analyzing PJM's economic demand response program

AU - Walawalkar, Rahul

AU - Blumsack, Seth Adam

AU - Apt, Jay

AU - Fernands, Stephen

PY - 2008/9/29

Y1 - 2008/9/29

N2 - We analyze the economic properties of the economic demand response program in the PJM electricity market. The original program provided subsidies and side payments to customers who agreed to reduce load in a given hour. The program featured a price level or "trigger point," set at $75/MWh, at or beyond which incentive payments for load reduction were made available. No incentives were available when market prices were below the trigger point. Particularly during peak hours, such a program does save money for the system, but the subsidies involved introduce distortions into the market. We simulate demand-side bidding into the PJM market during 2006, and compare the social welfare gains with the subsidies paid to price-responsive load. We find that the largest economic effect arises through wealth transfers from generators to non price-responsive loads. Based on the incentive payment structure that was in effect through the end of 2007, we estimate that the social welfare gains exceed the distortions introduced by the subsidies. Lowering the "trigger point" increases the transfer from generators to consumers, but may result in the subsidy outweighing the social welfare gains due to load curtailment.

AB - We analyze the economic properties of the economic demand response program in the PJM electricity market. The original program provided subsidies and side payments to customers who agreed to reduce load in a given hour. The program featured a price level or "trigger point," set at $75/MWh, at or beyond which incentive payments for load reduction were made available. No incentives were available when market prices were below the trigger point. Particularly during peak hours, such a program does save money for the system, but the subsidies involved introduce distortions into the market. We simulate demand-side bidding into the PJM market during 2006, and compare the social welfare gains with the subsidies paid to price-responsive load. We find that the largest economic effect arises through wealth transfers from generators to non price-responsive loads. Based on the incentive payment structure that was in effect through the end of 2007, we estimate that the social welfare gains exceed the distortions introduced by the subsidies. Lowering the "trigger point" increases the transfer from generators to consumers, but may result in the subsidy outweighing the social welfare gains due to load curtailment.

UR - http://www.scopus.com/inward/record.url?scp=52349111247&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=52349111247&partnerID=8YFLogxK

U2 - 10.1109/PES.2008.4596905

DO - 10.1109/PES.2008.4596905

M3 - Conference contribution

AN - SCOPUS:52349111247

SN - 9781424419067

T3 - IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES

BT - IEEE Power and Energy Society 2008 General Meeting

ER -

Walawalkar R, Blumsack SA, Apt J, Fernands S. Analyzing PJM's economic demand response program. In IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES. 2008. 4596905. (IEEE Power and Energy Society 2008 General Meeting: Conversion and Delivery of Electrical Energy in the 21st Century, PES). https://doi.org/10.1109/PES.2008.4596905