Economic Value of the Integration of Consumption Preferences in Electric System Planning

Aligning price signals to drive customer value

Conceptually, economic efficiency achievement lies within open-access, competitive markets where market pricing balances consumer demand and market supply. An equilibrium price is established continuously based upon the intersection of supply and demand. Where electricity is regulated as a monopoly, however, customers historically did not receive price signals that would influence consumption behavior; instead, prices were reflective of rates that correspond to the investment and operating costs of the utilities. The emergence of smart grid technologies, improved methods for communicating prices, and greater variability of outputs from sources such as distributed energy resources (DERs) have challenged the regulatory structure. The traditional utility structure faces increasing pressure to account for potential market-driven price incentives made possible by these technologies.

This paper, developed by SEPA’s Home/Building/Industry-to-Grid working group, emphasizes the relevance of using the metric of market-clearing equilibrium prices for determining the economic benefits of integrating supply and demand decisions in a more volatile and dynamic electric energy industry. The paper explains the application of the metric, compares it to industry alternatives, and shows that the metric achieves the benefits of an open, transparent market where customers elect to consume or avoid consumption based upon individual preferences, creating greater economic efficiency.

What’s in the report

• Review of competitive market economics, including application in the electric industry
• Comparison of market-based prices to utility prices
• Illustrative examples of the applicability of market-clearing prices for resource dispatch decisions and for the formation and selection of supply and demand alternatives