Reliability differentiated real-time pricing of electricity

Optimal resource planning and power dispatch models (from a societal welfare point of view) imply an optimal pricing policy, which is referred to here as reliability differentiated real-time pricing or, in short, reliability differentiated pricing. This pricing scheme combines real-time pricing and priority pricing with reliability differentiation based on consumer outage costs. This pricing policy is analyzed. The model used in the analysis is developed with particular emphasis on consumer behavior and welfare effects. The implications of the model for the pricing of spinning reserve and firm capacity, as well as for revenue reconciliation, are examined. It is concluded that such a pricing scheme will in general result in greater attainable welfare than either the real-time pricing or priority pricing paradigms. Moreover, it results in the maximum attainable welfare for the system with revenue reconciliation and provides an optimal pricing scheme for spinning revenue and firm capacity