Impact of Demand-Response on the Efficiency and Prices in Real-Time Electricity Markets

International audienceWe study the effect of Demand-Response (DR) in dynamic real-time electricity markets. We use a two-stage market model that takes into account the dynamical aspects of gen-eration, demand, and DR. We study the real-time market prices in two scenarios: in the former, consumers anticipate or delay their flexible loads in reaction to market prices; in the latter, the flexible loads are controlled by an independent aggregator. For both scenarios, we show that, when users are price-takers, any competitive equilibrium is efficient: the players' selfish responses to prices coincide with a socially optimal policy. Moreover, the price process is the same in all scenarios. For the numerical evaluation of the properties of the equilibrium, we develop a solution technique based on the Alternating Direction Method of Multipliers (ADMM) and trajectorial forecasts. The forecasts are computed us-ing wind generation data from the UK. We challenge the assumption that all players have full information. If the as-sumption is verified, then, as expected, the social welfare increases with the amount of DR available, since DR relaxes the ramping constraints of generation. However, if the day-ahead market cannot observe how elastic loads are affected by DR, a large quantity of DR can be detrimental and leads to a decrease in the welfare. Furthermore, the DR operator has an incentive to under-dimension the quantity of avail-able DR. Finally, we compare DR with an actual energy storage system. We find that storage has a faster response-time and thus performs better when only a limited amount is installed. However, storage suffers from charge-discharge in-efficiency: with DR, prices do concentrate on marginal cost (for storage, they do not) and provide a better welfare

Essays om det norske sluttbrukermarkedet for elektrisitet

The thesis explores efficiency outcomes following the Norwegian electricity market reform introduced in the early 1990s. Specifically, the thesis investigates efficiency outcomes resulting from the incentive regulation of electricity network companies, the inhererent nature of household consumers and their attitudes to market participation, electricity price development in standard electricity contracts, and the potential for facilitating practices to increase collusive market behavior among retailers. The thesis consists of an extensive introductory chapter that comprises the context and background information to the four empirical studies, data, methods and a summary. Using rich data and sophisticated methods, the thesis brings new evidence to bear on the economics and psychology of household switching behavior of electricity retailers, development in electricity contract prices, and market vehavior among retailers.Denne avhandlingen undersøker og evaluerer reformen innen elektrisitetssektoren som ble innført tidlig på 1990-tallet vurdert fra fire perspektiver: insentivregulering av nettselskap, husholdningskunders aktivitet i sluttbrukermarkedet, prisutviklingen i elektrisitetskontrakter, og markedssvikt som følge av markedsoppførsel som ikke er i tråd med sunn konkurranse. Avhandlingen består av fire artikler samt et introduksjonskapittel som presenterer bakgrunn, data, metode, konklusjon og sammendrag. Artiklene legger til grunn et omfattende datagrunnlag, og benytter avanserte økonometriske metoder for å finne mekanismer og deres empiriske spor som skal besvare spørsmålene som undersøkes. Avhandlingen bidrar til ny innsikt både når det gjelder markedsadferd og prisutvikling.Høgskolen i Østfol

Modelling customer behaviour in contractual settings

The objective of this dissertation is to develop models of customer behavior that provide insights for firms working in contractual settings. A contractual setting is a business situation in which the time when a customer becomes inactive is perfectly observable. This is in contrast to noncontractual settings (e.g., Reinartz and Kumar 2000), where a company does not observe whether or not a customer is still active. In the first chapter we elaborate on this definition, providing a classification of contractual businesses depending on the nature of the transactions. In the second chapter we develop a joint model to forecast renewal and usage behaviors simultaneously. The models previously proposed for contractual settings primarily focus on predicting churn, while they are silent about how to predict usage behavior. In order to fill this gap, we develop a joint model of churn and usage behavior under the assumption that both are driven by the same underlying process (e.g., commitment). This enables the model to predict usage (thus contribution) and retention simultaneously and accurately. Besides its methodological contribution, this study has important managerial implications for customer base analysis, and lifetime value calculations. In chapter 3 we focus our attention on understanding customers’ behavior when subscribed to multi-priced contracts. A growing body of work about two- and three-part tariffs has recently emerged in the literature. However, even though three-part tariff contracts are now being offered in many business settings, there is no research investigating the effect of these pricing practices on customer switching and usage behavior. We explore this issue in Chapter 3. Given a unique data set from a mobile telephony operator, we investigate customer switching between two- and three-part tariffs as well as customers’ usage behavior under the two types of tariffs. We measure how an individual’s usage behavior is affected by changes in the tariff mechanism, and how the launch of the new tariffs impacts the firm’s revenue. The results of this analysis have important managerial implications for pricing and tariff design. Finally, we look at a customer relationship setting unstudied in the marketing literature: prepaid contracts. Prepaid is a big phenomenon in the market place. For many people, daily activities/services are prepaid; from commodities (transit commute, mobile phone, gas, etc.) to leisure products (Starbucks, Borders, etc.). Despite the popularity of this practice, we find that there is basically no work in the marketing and related literatures that explores this issue. Moreover, once we start exploring the notion of prepaid, we see references to gift cards, prepaid credit cards, transit cards, and various other forms of prepaid, though it is not clear how all these prepaid services are related. In Chapter 4 we review the various prepaid services and provide a framework to classify all these business settings. In particular, we uniquely characterize the prepaid mobile phone setting and identify several business issues that practitioners face in this market. Finally, we discuss the modeling challenges that researchers will face when trying to solve these business issues