The importance of marginal cost electricity pricing to the success of greenhouse gas reduction programs

Friedman, Lee S.

doi:10.1016/j.enpol.2011.08.063

Cited by 23 publications

(10 citation statements)

References 12 publications

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“…Hartley and Moran (2000) offer an explanation to Friedman's (2011) findings: in a competitive auction market prices are always set so that the market clears, with both demand and supply adjusting. As demand has low price elasticity, all adjustment in the short term is on the supply side.…”

Section: Literature Review: Explanation Of Marginal Cost Pricing For mentioning

confidence: 99%

“…This results in overconsumption of electricity during peaks and under-consumption during off-peak periods. Consequently according to Friedman's (2011) calculations the average U.S. residential consumer faces a price for off-peak electricity that is 331% above its actual marginal cost.…”

Section: Literature Review: Explanation Of Marginal Cost Pricing For mentioning

confidence: 99%

“…Even without these supplementary objectives achievement of the core component -economic efficiency in production and transmission -is a challenge: production costs of electricity vary with changes in electricity demand and time. Friedman (2011) argues that real-life electricity prices are almost never equal to the marginal costs of providing it. Referring to United States electricity markets he demonstrates that electricity sales rates are usually set at average cost.…”

Section: Literature Review: Explanation Of Marginal Cost Pricing For mentioning

confidence: 99%

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The dangers of marginal cost based electricity pricing

Pikk¹,

Viiding²

2013

Baltic Journal of Economics

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Led by energy and environmental policies the EU power sector is undergoing vast changes to achieve a market driven and sustainable future. Market based price discovery and different renewable support schemes are seen as key solutions in achieving the desired future production mix. Most liquid power markets use marginal cost based price discovery where the price is set by marginal costs of the last producer needed to cover all load, usually a fossil fuel power plant. At the same time the majority of new investments are made with significant help from government support schemes in renewable production capacities, which have very low marginal costs. The increasing share of renewable production will thus impact price levels in day-ahead markets. This paper analyses the potential impact of more renewable electricity production on price discovery in the NordPool Spot market, which already has a high share of renewable electricity traded. Results show that ceteris paribus NordPool Spot is likely to have very high price volatility in the future and alternative revenue sources are required for new investments.

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Section: Literature Review: Explanation Of Marginal Cost Pricing For mentioning

confidence: 99%

Section: Literature Review: Explanation Of Marginal Cost Pricing For mentioning

confidence: 99%

Section: Literature Review: Explanation Of Marginal Cost Pricing For mentioning

confidence: 99%

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The dangers of marginal cost based electricity pricing

Pikk¹,

Viiding²

2013

Baltic Journal of Economics

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“…However, wholesale prices would respond to any structural changes in the power system, which would in time feed into end-user prices (Friedman, 2009). Thus, examining the effect of storage on the wholesale electricity price would show the value of storage from the societal perspective.…”

Section: Econometric Estimationsmentioning

confidence: 99%

The impact of electricity storage on wholesale electricity prices

Nyamdash

Denny

2013

Energy Policy

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This paper analyzes the impact of electricity storage on the production cost of a power system and the marginal cost of electricity (electricity price) using a unit commitment model. Also real world data has been analyzed to verify the effect of storage operation on the electricity price using econometric techniques. The unit commitment model found that the deployment of a storage system reduces the fuel cost of the power system but increases the average electricity price through its effect on the power system operation. However, the reduction in the production cost was found to be less than the increase in the consumer's cost of electricity resulting in a net increase in costs due to storage. Different storage and CO 2 price scenarios were investigated to study the sensitivity of these results. The regression analysis supports the unit commitment results and finds that the presence of storage increases average wholesale electricity prices for the case study system.

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“…The incentive of TOU rates to net-zero households, and one that has not yet been quantified in literature to the authors' knowledge, is that by properly scheduling appliances during the off-peak hours consumers are able to use more electricity than they generate without paying for the extra consumption (see Section 3.2). Nevertheless, as of 2011 only 1% of utility consumers utilize some form of a TOU rate, in part due to the lack of smart meters, but also due to the uncertainty of whether or not TOU rates offer a great enough incentive for customers to opt-in [11,12]. Therefore, this paper quantifies the bill savings of residents who shift heavy duty electric and domestic hot water (DHW) loads from their typical time-of-use to the off-peak periods in a solar-powered NZE apartment building, in order to shed light on the advantages of rate structures, energy policies and new smart-scheduling household appliances, while also highlighting their shortcomings.…”

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confidence: 99%

The impact of scheduling appliances and rate structure on bill savings for net-zero energy communities: Application to West Village

Gaiser

Stroeve

2014

Applied Energy

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Appliance time-of-use in a net-zero energy apartment was shifted to offpeak hours. Net-metered residents were not charged for consuming more than they produced. Residents accrued twice as many credits by shifting heavy-duty appliances.For some rate structures it is only beneficial to schedule between May and October. Electrically heated homes accrued more credits than those using a heat pump.g r a p h i c a l a b s t r a c t a r t i c l e i n f o b s t r a c tThis paper investigates the financial incentives of load shifting under a time-of-use rate and Net Energy Metering pertaining to the solar net-zero energy apartment community, West Village in Davis, California. By ''smart-scheduling'' the electricity and domestic hot water demand of the dishwasher, clothes washer, dryer, sinks and showers solely to off-peak periods, the peak demand is reduced by 18%, the part-peak demand by 32% and the off-peak demand increased by 12%. With this shifted schedule customers accrue twice as many credits as they would receive under a non-shifted schedule with the same time-of-use rate, totaling to $2975 of ''free'' electricity per year for one 12 unit building. But, under current rates smart-scheduling is found to be worthwhile only during the months from May through October, when 96% of the credits are accumulated. If the rate schedule is altered to include peak-periods during the winter months, the credit savings will double again in value. These comparisons are prepared using two photovoltaic simulation programs (PolySun by Vela Solaris and System Advisory Model by the National Renewable Energy Laboratory) and for apartments using an electric heater and a heat pump for domestic hot water. By quantifying these savings, PV generating customers are informed that a time-of-use rate can benefit them significantly, especially if the surplus generation is maximized and sold to the grid during peak day time hours. With this information, housing developers can create effective incentives for residents, and utility companies, policy makers and designers of smart-scheduling household appliances can encourage a more reliable, clean and economical national grid.

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The importance of marginal cost electricity pricing to the success of greenhouse gas reduction programs

Cited by 23 publications

References 12 publications

The dangers of marginal cost based electricity pricing

The dangers of marginal cost based electricity pricing

The impact of electricity storage on wholesale electricity prices

The impact of scheduling appliances and rate structure on bill savings for net-zero energy communities: Application to West Village

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