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CEIC-07-02

"Impacts of Responsive Load in PJM: Load Shifting and Real Time Pricing"
Kathleen Spees and Lester Lave

Abstract:
We use a short-term equilibrium model to evaluate the impacts of a demand response in the Pennsylvania-New Jersey-Maryland (PJM) Regional Transmission Organization Territory. The supply model is based on market data. In a load-shifting simulation, we find that half of all possible customer savings can be obtained by shifting only 1.7% of all MWh to another time of day, indicating that small demand-side changes can make a large difference. In a real-time pricing (RTP) scenario, we explore the implications of constant elasticities of demand varying from 0 to -1. Producer surplus impacts are small, varying from a 0.5% loss to a 0.4% gain. Consumer surplus and consumption can increase up to 4.3% and 3.9%, respectively. Large reductions in peak demand can be achieved even with a small amount of responsiveness; at elasticities -0.2 and -1, peak load drops by 10.3% and 16.2% respectively with RTP, which would relieve tens of billions in capacity investments over PJM. The more easily managed time of use pricing (TOU) drops peak load only 2.5% and 3.6% at elasticities -0.2 and -1, respectively. Total surplus increase from a change to TOU pricing is only 27.0-28.5% of the increase from a change to RTP. These results suggest that the largest benefit from RTP comes from reducing peak capacity investments; TOU pricing, while easier to manage, offers only a fraction of these benefits and requires almost the same infrastructure investment as RTP.

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