Real-time pricing and demand side participation in restructured electricity markets

Key words: Spot and retail pricing, demand charges, demand-side bids, demand elasticities, restructured electricity markets, competition. Abstract: This chapter presents some results of an econometric analysis (developed in Patrick and Wolak 2001b) of customer-level demands for electricity of large and medium-sized industrial and commercial customers purchasing electricity under half-hourly spot prices and demand charges coincident with system peaks in the England and Wales (E&W) electricity market. These estimates can be used to forecast customer-level price responsiveness, design alternative time-of-use and fixed retail pricing options, and develop demand side bids. Here, we focus on how customers respond to real-time prices and how this response can be used in designing demand side bids. A significant price response in the market price determination process will reduce the magnitude and volatility of spot prices in restructured electricity markets. Day-ahead price elasticity estimates vary substantially by time-of-day, industry, and firms within industries; with sample mean averages ranging from essentially zero to 0.86 in absolute value. Regardles