The theory of peak-load pricing: A survey

Crew, Michael A.; Fernando, Chitru S.; Kleindorfer, Paul R.

doi:10.1007/bf01070807

“…Several papers on peak load pricing and capacity investments by a power utility under stochastic demand address partially this modeling issue (see Carlton (1986), Crew et al (1995) and Brown and Johnson (1969)). Nevertheless, Figure 2 Consumer surplus for stochastic demand, before demand rationing the models developed in this literature are not applicable to the price setting newsvendor.…”

Section: Consumer Surplusmentioning

confidence: 99%

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

Cohen

¹

,

Lobel

²

,

Perakis

³

2014

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This paper studies government subsidies for green technology adoption while considering the manufacturing industry's response. Government subsidies offered directly to consumers impact the supplier's production and pricing decisions. Our analysis expands the current understanding of the price-setting newsvendor model, incorporating the external influence from the government who is now an additional player in the system. We quantify how demand uncertainty impacts the various players (government, industry and consumers) when designing policies. We further show that for convex demand functions, an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier. With this in mind, one could expect consumer surplus to increase with uncertainty. In fact, we show this is not always the case and the uncertainty impact on consumer surplus depends on the trade-off between lower prices and the possibility of under-serving customers with high valuations. We also show that when policy makers such as governments ignore demand uncertainty when designing consumer subsidies, they can significantly miss the desired adoption target level. From a coordination perspective, we demonstrate that the decentralized decisions are also optimal for a central planner managing jointly the supplier and the government. As a result, subsidies provide a coordination mechanism.

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“…Some works on electricity peak-load pricing and capacity investments address the stochastic demand case (see Crew et al (1995) for a review on that topic). In this context, it is usually assumed that the supplier knows the willingness to pay of customers and can therefore decline the ones with the lowest valuations in the case of a stock-out.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

Cohen

¹

,

Lobel

²

,

Perakis

³

2016

View full text Add to dashboard Cite

This paper studies government subsidies for green technology adoption while considering the manufacturing industry's response. Government subsidies offered directly to consumers impact the supplier's production and pricing decisions. Our analysis expands the current understanding of the price-setting newsvendor model, incorporating the external influence from the government who is now an additional player in the system. We quantify how demand uncertainty impacts the various players (government, industry and consumers) when designing policies. We further show that for convex demand functions, an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier. With this in mind, one could expect consumer surplus to increase with uncertainty. In fact, we show this is not always the case and the uncertainty impact on consumer surplus depends on the trade-off between lower prices and the possibility of under-serving customers with high valuations. We also show that when policy makers such as governments ignore demand uncertainty when designing consumer subsidies, they can significantly miss the desired adoption target level. From a coordination perspective, we demonstrate that the decentralized decisions are also optimal for a central planner managing jointly the supplier and the government. As a result, subsidies provide a coordination mechanism.

show abstract

“…Experimentation with TOU rates in the residential sector indicates that TOU prices flatten load shapes by decreasing usage in the high-price periods and increasing usage in the low-price periods (Atkinson, 1979;Caves and Christensen, 1980;Caves et al, 1984;Herriges et al, 1984). The shortcoming of TOU tariffs is that they do not provide additional incentives to reduce demand further on days when the system is most stressed, because they reflect only longterm average expectations of daily peak marginal costs (Crew et al, 1995).…”

Section: Introductionmentioning

confidence: 99%

Residential implementation of critical-peak pricing of electricity

Herter

¹

2007

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This paper investigates how critical-peak pricing (CPP) affects households with different usage and income levels, with the goal of informing policy makers who are -916-654-4328; fax: +1-916-653-3478 Email address: KBHerter@lbl.gov. 1 $50,000 annually were the most likely of the groups to see bill increases -about 5% saw bill increases of 10% or more -suggesting that any residential CPP implementation might consider targeting this customer group for increased energy efficiency efforts.

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The theory of peak-load pricing: A survey

Cited by 308 publications

References 76 publications

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

Residential implementation of critical-peak pricing of electricity

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