A Dynamic Pricing Thought Experiment

Imagine that all residential electricity customers experience real-time pricing. We all have smart meters and smart appliances which enable customers to register a spot price beyond which the user is willing to automatically curtail use. Imagine that a popular air conditioner manufacturer ships its unit with a default curtailment price of $.25/kWh. What is your ideal bid?

You certainly don't want to leave it set at the user default. Your bid will be lost amid the others. If you value your comfort, a bid of $.26 will clear out the vast mass of people who just leave their appliance set at the default while still preserving the lowest possible bid. I'm not sure what a $.24 bid says about you, though. Maybe that you're cheap and want to capitalize on savings before everyone else?

ERCOT (in Texas) already limits the pool of demand resources because they can react so fast to an event call that the system goes into overvoltage. I wonder if device manufacturers will be required to ship their smart appliances with a randomized default bid to prevent a sudden shutoff of half the air conditioners at a substation.

The world of real-time pricing is going to be a fascinating place in ways the academics haven't even begun to consider.


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