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CEIC-07-01

"Demand Response and Electricity Market Efficiency"
Kathleen Spees and Lester Lave

Abstract:
Increasing the responsiveness of electricity customers to price is important for three reasons: 1. reducing peak demand lowers costs and allows consumers to stop buying kilowatt-hours when the cost is more than they are willing to pay, 2. load shedding can increase system reliability when there is insufficient supply, as when a large generator or transmission line trips and goes off-line, and 3. load might be able to provide regulation and spinning reserve at lower costs than generation. An automated system would allow customers to react in real time to cut back buying expensive power and to alleviate emergency conditions. Customers of gasoline, natural gas, fresh produce, fresh meat, and many other products face prices that vary with the cost of production; they are not happy when prices rise, but have learned to deal with these situations. We review published studies of demand response and electricity conservation to explore the conceptual issues and the quantitative range of expenses.

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