Enhancing price-responsiveness of end-use customers' loads: dynamically administered critical peak pricing

The purpose of this paper is to examine the economic and technical perspectives of dynamically administered critical peak pricing (DA-CPP) program as an active demand response (DR) program. To implement a good DR program, there are three perspectives to be considered: regulatory, economic, and technical perspectives. We propose a special DA-CPP program as an effective DR program, which is administered by an energy service provider (ESP). ESP has control on when to call critical peaks on this program. This gives both the administrator and the end-use customers incentives to reduce loads on critical moments. We will assume that the regulatory perspective of DR is determined as a DA-CPP program and examine the other two. The economic perspective of DA-CPP program is the incentive of the program administrator, or the profit of an ESP. The technical perspective is a method to maximize the incentive of DA-CPP program, or an ESP's profit. An ESP should decide when to call critical peaks within certain constraints to maximize her profit. This is done by predicting the market prices and following a similar method as evaluating a swing option. The numerical example will show the optimal critical peak decisions. Copyright © 2008 John Wiley & Sons, Ltd.