Prior studies have shown that dynamic pricing can provide numerous benefits to utilities and customers alike by lowering the need for expensive peaking capacity, improving system reliability, and reducing power costs. The purpose of this whitepaper is to help facilitate nationwide progress toward the deployment of dynamic pricing of electricity by summarizing information that may assist utilities and regulators who are assessing the business case for advanced metering infrastructure (AMI).
This whitepaper highlights five dynamic pricing programs that have been implemented in the U.S. and surveys the progress toward deploying AMI. In Section 2, we define and discuss the rationale for dynamic pricing. In Section 3, we assess the costs and benefits of dynamic pricing for customers, for utilities, and for independent system operators and regional transmission organizations. In Section 4, we explore whether customers respond to dynamic prices in a predictable way and rely on evidence from five dynamic pricing programs. We carefully review the design of these programs, three of which are pilots and two of which are full scale deployments, and summarize the empirical demand response results.