Resilient Electricity Requires Consumer Engagement

Abstract

Active consumers are essential to transitioning to a flexible, resilient energy system. Electricity markets balance supply and demand with price. Historically, this price response has come almost entirely from supply. However, when much of supply is intermittent or inflexible, price-responsive demand becomes essential for energy reliability. It is also key to building resiliency into a system facing more extreme events in a changing climate. We measure how price-responsive consumers are in Britain from August 2020 to August 2021 with half-hourly individual-household data. Our sample includes customers with a dynamic rate that tracks wholesale cost and flat-rate customers used to control for weather and other factors. A one percent increase in price reduces demand by 0.26 percent. This elasticity is larger for consumers owning low-carbon technologies. This price response is sufficient to maintain system balance in extreme events even when most consumers are unresponsive. Regulators can encourage price-responsive demand through retail choice and subsidizing enabling technologies. Regulators can also protect consumers with mandated hedging in dynamic plans. Low-income households benefit most from such policies.

Keywords: electricity market design, price responsive demand, consumer engagement, resiliency, energy security