Beneficial Complexity: A Field Experiment in Technology, Institutions, and Institutional Change in the Electric Power Industry
28 Pages Posted: 10 Jun 2009
Date Written: June 10, 2009
This paper presents and analyzes the results of a recent field experiment in which residential electricity customers in Washington State with price-responsive in-home devices could use those devices to change their electricity consumption autonomously. Doing so also required an important institutional change: the regulatory institutions had to change to allow dynamic pricing. Customers could choose a retail pricing contract from a portfolio of contracts, instead of the fixed, regulated retail rate. Here we focus on the results of the real-time contract, under which homeowners participate in a double auction with a market clearing occurring every five minutes. These customers saved money, and their peak demand (and pressure on infrastructure at peak capacity) fell by 15 percent. Moreover, this combination of technology and institutional design enabled decentralized coordination, and we use complexity science to interpret results that show that the real-time market outcomes were those of a self-organizing and scalable complex adaptive system. We also draw policy implications from these results.
Keywords: electricity, technology, regulation, institutional design, dynamic pricing
JEL Classification: L50, L94, L98, D40, C45, C93
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