Analysis of dynamic retail electricity rates and domestic demand response programs

Currently, the majority of residential customers are charged a flat retail electricity rate, giving them one option to save money: reduce consumption. This flat rate philosophy is in stark contrast to the wholesale market, which can have substantial fluctuations in market price, especially during peak demand. Although demand response has emerged in the large industrial sector, its presence is lacking in the residential sector. This paper investigates several barriers to residential demand response programs, including the prevalence of flat retail rates and limited flexibility in customer choice in current electricity rates. We present a modified real time price (mRTP) model that encourages customer choice in electricity rates and is based on the amount of risk customers are willing to take and a real time grid condition index developed by the California Independent Service Operator. A case study is presented using smart meter data from nine different houses. This study includes categorizing the nine houses into three different categories: houses that benefit from the mRTP, houses that benefit from a flat rate, and houses that are indifferent to rate design. We also compare the yearly savings of these households as a function of demand response participation level. From this comparison, we conclude that load serving entities should focus their attention on implementing the mRTP in households that are indifferent to rate design. This is because they have little risk in changing to an mRTP and have high potential savings if they have the capability to actively participate, thus giving these houses the most incentive to participate in demand response.