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The Economics of the Smart Grid

Author

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  • Luciano De Castro

Abstract

Smart Grid (SG) technologies may bring substantial advantages to society, but the required investments are also sizable. This paper establishes a framework for examining the issues related to the SG, and highlights some of the difficulties in establishing a mechanism for paying SG costs. In particular, we show that generators will lose profits as a direct effect of demand response initiatives, and most of the benefits of SG cannot be easily converted into payments. JEL Code: D61,H42, D62,L51

Suggested Citation

  • Luciano De Castro, 2011. "The Economics of the Smart Grid," Discussion Papers 1544, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1544
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    References listed on IDEAS

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    1. Mardavij Roozbehani & Munther A Dahleh & Sanjoy K Mitter, 2011. "Volatility of Power Grids under Real-Time Pricing," Papers 1106.1401, arXiv.org.
    2. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    3. Ahmad Faruqui & Sanem Sergici, 2010. "Household response to dynamic pricing of electricity: a survey of 15 experiments," Journal of Regulatory Economics, Springer, vol. 38(2), pages 193-225, October.
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    Cited by:

    1. Smith, Alexander M. & Brown, Marilyn A., 2015. "Demand response: A carbon-neutral resource?," Energy, Elsevier, vol. 85(C), pages 10-22.
    2. Tunç Durmaz & Aude Pommeret & Ian Ridley, "undated". "Willingness to Pay for Solar Panels and Smart Grids," MITP: Mitigation, Innovation and Transformation Pathways 257879, Fondazione Eni Enrico Mattei (FEEM).
    3. Klaus Friesenbichler, 2013. "Innovation in the Energy Sector. WWWforEurope Working Paper No. 31," WIFO Studies, WIFO, number 46917.
    4. Nikolaos Iliopoulos & Motoharu Onuki & Miguel Esteban, 2021. "Shedding Light on the Factors That Influence Residential Demand Response in Japan," Energies, MDPI, vol. 14(10), pages 1-23, May.

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    Keywords

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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