Seminar - 2

Speaker: Derya Eryılmaz, University of Minnesota

Venue  : Engineering Faculty Building, Vedat Yerlici Kültür Merkezi VYKM-1

Abstract:

Dynamic pricing, usually known as real-time pricing, allows electricity users to observe real-time electricity prices and to allow consumers to adjust their electricity consumption behavior based on hourly price changes in the wholesale market. Real-time pricing offers one potential tool to reduce electricity costs, save on large investments in transmission lines, reduce the probability of spikes in the wholesale electricity markets, promote fairness in the market, and ultimately contribute to market efficiency of electricity consumption (Mansur and Holland, 2008; Caves et al., 2000). Real-time pricing may also have important environmental effects due to considerable variation in electricity demand during the day (Mansur and Holland, 2008). Changes in electricity demand may impact electricity generation and its concomitant production of emissions. For example, during peak demand hours, generators increase their load to meet higher demand, which in turn increases real-time electricity prices. Increase in the generation load then also leads to an increase in consumption of sources of emission, in particular coal, natural gas, diesel oil, and petroleum. However, the environmental implications that may follow real-time pricing in the wholesale market are understudied. Part of the lack of research can be attributed to electricity’s status as a non-storable commodity; market demand for electricity is considerably inelastic, flat rate design while there is real-time variability in supply and demand (Newell et al., 2014). In this study, we examine the impact of price responsiveness of consumers in the Midwest wholesale market on emissions form three major pollutants of , and caused by electricity generation in the Midwest ISO market. Our results show significant evidence that an increase in electricity price responsiveness in the wholesale market leads to a decrease in emissions; but an increase in and emissions from electricity generation. However, during peak hours, we found that a percent increase in real-time prices is associated with a decrease in emissions from , and pollutants: a 10% increase in the real-time prices is associated with 0.2% decrease in , 0.05% decrease in and 0.1% decrease in emissions during the peak hours. Our paper contributes to an understanding of the environmental implications of the hourly real-time pricing and identifies the environmental implications of consumers’ price responsiveness in the Midwest wholesale market. An important implication of our empirical analysis is that real-time pricing may not offer as clean alternative as expected. For example, our regression results for the Midwest market average including all generator types show that the real-time price elasticity of hourly emissions is positive. However, our work suggests that the impact of real-time pricing on the environment may be different during peak hours, and we find that price elasticity of emissions is in fact negative during peak hours.

Bio:

Derya Eryilmaz is a research assistant with the NorthStar Initiative for Sustainable Enterprise. She is currently working on Initiative for Renewable Energy and the Environment (IREE) grant on energy efficiency and demand response integration in the Midwest ISO electricity markets. She is also pursuing a Ph.D. in Applied Economics at the University of Minnesota. Her dissertation research focuses on optimal investment decisions on wind power considering policy uncertainties and dynamic spatial demand analysis in the Midwest ISO electricity markets. Derya has M.S. degrees in Natural Resources Science and Management from University of Minnesota and Sustainable Development from Uppsala University in Sweden and B.S. in Economic from Ankara University in Turkey. Her past research investigated the policy evaluation on natural resources and the relationship between the environmental assets and development.