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Paying for the smart grid

Author

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  • De Castro, Luciano
  • Dutra, Joisa

Abstract

Smart grid technologies may bring substantial advantages to society, but the required investments are sizable. This paper analyzes three main issues related to smart grids: reliability, demand response and cost recovery of investments. In particular, we show that generators will lose profits as a direct effect of demand response initiatives, and most of the benefits of smart grids cannot be easily converted into payments. Moreover, there are potential issues in the choices made by utilities for providing smart grids, and the reliability pertinent to smart grids is a kind of public good.

Suggested Citation

  • De Castro, Luciano & Dutra, Joisa, 2013. "Paying for the smart grid," Energy Economics, Elsevier, vol. 40(S1), pages 74-84.
  • Handle: RePEc:eee:eneeco:v:40:y:2013:i:s1:p:s74-s84 DOI: 10.1016/j.eneco.2013.09.016
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    References listed on IDEAS

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    1. Paul Joskow & Jean Tirole, 2006. "Retail electricity competition," RAND Journal of Economics, RAND Corporation, pages 799-815.
    2. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    3. Severin Borenstein & Stephen Holland, 2005. "On the Efficiency of Competitive Electricity Markets with Time-Invariant Retail Prices," RAND Journal of Economics, The RAND Corporation, pages 469-493.
    4. repec:rje:randje:v:37:y:2006:i:4:p:799-815 is not listed on IDEAS
    5. S. Borenstein, 2013. "Effective and Equitable Adoption of Opt-In Residential Dynamic Electricity Pricing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(2), pages 127-160, March.
    6. Stephen P. Holland & Erin T. Mansur, 2008. "Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance," The Review of Economics and Statistics, MIT Press, pages 550-561.
    7. Ahmad Faruqui & Sanem Sergici, 2010. "Household response to dynamic pricing of electricity: a survey of 15 experiments," Journal of Regulatory Economics, Springer, pages 193-225.
    8. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
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    Citations

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    Cited by:

    1. Hall, Stephen & Foxon, Timothy J., 2014. "Values in the Smart Grid: The co-evolving political economy of smart distribution," Energy Policy, Elsevier, vol. 74(C), pages 600-609.
    2. Eid, Cherrelle & Reneses Guillén, Javier & Frías Marín, Pablo & Hakvoort, Rudi, 2014. "The economic effect of electricity net-metering with solar PV: Consequences for network cost recovery, cross subsidies and policy objectives," Energy Policy, Elsevier, vol. 75(C), pages 244-254.
    3. Anil Markandya & Xavier Labandeira & Ana Ramos, 2013. "Policy Instruments to Foster Energy Efficiency," Working Papers 01-2014, Economics for Energy.
    4. Tunç Durmaz & Aude Pommeret & Ian Ridley, 2017. "Willingness to Pay for Solar Panels and Smart Grids," Working Papers 2017.24, Fondazione Eni Enrico Mattei.
    5. Prudence Dato & Tun Durmaz & Aude Pommeret, 2017. "Intermittent renewable electricity generation with smart grids," Working Papers 2017.09, FAERE - French Association of Environmental and Resource Economists.

    More about this item

    Keywords

    Smart grid; Demand response; Demand response effect; Reliability; Social planner problem in electricity markets; Public good; Regulation of utilities; Investment decisions by utilities;

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • K29 - Law and Economics - - Regulation and Business Law - - - Other
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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