Dynamic Modeling of Price Responsive Demand in Real-time Electricity Market: Empirical Analysis

TL;DR

This paper empirically analyzes how electricity demand responds to price changes in Texas, revealing complex dynamics including delays and distinct responses at different price levels, challenging traditional economic demand models.

Contribution

It introduces a hybrid dynamical model combining Hammerstein and ARX models to capture demand response characteristics, highlighting limitations of classical economic theories in real-time pricing.

Findings

Demand exhibits delayed responses to high prices.

Distinct demand behaviors at moderate versus extreme prices.

Traditional demand response models may be ineffective under observed dynamics.

Abstract

In this paper, we study the price responsiveness of electricity consumption from empirical commercial and industrial load data obtained from Texas. Employing a dynamical system perspective, we show that price responsive demand can be modeled as a hybrid of a Hammerstein model with delay following a price surge, and a linear ARX model under moderate price changes. It is observed that electricity consumption therefore has unique characteristics including (1) qualitatively distinct response between moderate and extremely high prices; and (2) a time delay associated with the response to high prices. It is shown that these observed features may render traditional approaches to demand response and retail pricing based on classical economic theories ineffective. In particular, ultimate real-time retail pricing may be limitedly beneficial than as considered in classical economic theories.