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Demand Response: Smart Market Designs for Smart Consumers

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Listed:
  • Nicolas Astier
  • Thomas-Olivier Léautier

Abstract

We study Peak-Time-Rebates (PTR) contracts in day-ahead electricity markets.Such contracts reward customers for reducing their consumption when wholesale prices are high. We start by pointing out that these market designs create arbitrage opportunities which, under asymmetric information, incentivize strategic consumers to inflate their baseline. We then show that an incentive compatible PTR design is equivalent to a variable Critical-Peak-Pricing design (vCPP), in which customers have to purchase their peak consumption at the spot price. Under asymmetric information, a relevant question is thus to design vCPP contracts optimally in order to achieve high enrollment rates under voluntary opt-in. This problem has different solutions depending on whether policy-makers choose to maintain existing cross-subsidies or not.

Suggested Citation

  • Nicolas Astier & Thomas-Olivier Léautier, 2021. "Demand Response: Smart Market Designs for Smart Consumers," The Energy Journal, , vol. 42(3), pages 153-176, May.
    • Handle: RePEc:sae:enejou:v:42:y:2021:i:3:p:153-176
    DOI: 10.5547/01956574.42.3.nast
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    References listed on IDEAS

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    Cited by:

    1. Julien Ancel, 2025. "Tariffs time-dynamics in competitive electricity retail markets with differentiated consumer reactions," Post-Print hal-05100663, HAL.
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    3. Staudt, Philipp & Dann, David, 2025. "Perceived complexity and effectiveness of dynamic electricity rate designs for smart markets," Applied Energy, Elsevier, vol. 394(C).
    4. Jérôme Renault & Claude Crampes, 2025. "Assistance to electricity consumers with price misperception," Working Papers hal-05460697, HAL.

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