Real-time reliability-based electricity pricing

Abstract

Electricity provides a unique opportunity to determine how much consumers will actually pay for product reliability. The electric network is robust and can generally survive the failure of several components. As these components fail, sensing devices on the portion of the network still operating can continually produce reliability indices. The central reliability index, system frequency, can be used with other reliability indices to set the price for electricity on a concurrent, real-time basis. Electric systems now operate in a command and control environment. A system operator makes decisions to match the level of total generation and the level of total load, generally controlling the production of electricity, but sometimes also controlling the use of electricity. With the increase in competition, electric systems need to add economic incentives to the tools the system operator has available to achieve the real-time matching of generation and load. A dynamic reliability-based price for electricity would allow customers to make the explicit choice between reliability of service and the price of electricity. Similarly, independent equipment owners could make economic decisions to increase system reliability at the cost of installing and operating equipment. Such a dynamic pricing mechanism would provide an economic negative feedback loop that determines both economically and physically the optimal operating level.