Distributed generation can provide an appropriate customer price response to help fix wholesale price volatility

In recent years, wholesale power markets have shown extreme price swings and this illustrates that much of the marketplace is functioning on market-based rather than cost-based rates. However, the price utilities and other providers pay for their power seldom gets directly allotted to utility customers. Prices are high as $7,500 MWH or about 100 times higher than normal peak times were seen in extreme circumstances, In the Midwest US, marketers, utilities and others had to absorb much of these costs or rely on neighbors. In San Diego, customers themselves have to absorb the brunt of similar price swings. The premise of this paper is that distributed generation (DG) owned by customers, could and should be enabled to respond to these price signals and thus reduce the volatility in prices in the wholesale marketplace. In simplistic terms, the high cost of power is caused by: (1) scarcity of supplies; (2) marker-based rates; and (3) the historic utility position of “reliability at any cost”