Electricity price forecasting models

This paper proposes that the price of electricity should be parsed into two components: energy price and "reliability price". From the supply point of view, in addition to the energy price, there is a cost associated with reliability, or continuity of supply. This cost, which differs from other commodities, arises because electricity cannot be stored. From the demand point of view for some customers electricity is an essential commodity, while other customers may want a choice of how much reliability they are willing to pay for. If customers have the options of interruptible rates or curtailable rates, or perhaps the option of limiting demand upon receipt of a signal from the control center, then they can consume energy but not reliability, or they can only partially consume reliability. Furthermore suppliers can reduce supply costs if they can reduce demand. In the long term, reduced demand reduces the need for generation capacity. Over the short term, demand reduction that is under the control of the dispatch center can reduce the demand for ancillary services.