Making consumers reactive to real-time pricing helps decarbonate electricity provision with solar and wind power
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Consumers benefit from real-time pricing if they are not too risk-averse
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The loss from exposing consumers to volatile prices is more than offset by lower production and environmental costs.
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The social gain of real-time pricing is decreasing when the proportion of reactive consumers increases
Abstract
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.
