Interruptible electric power service contracts

Interruptible electric power service contracts

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Article ID: iaor1995591
Country: Netherlands
Volume: 17
Issue: 3
Start Page Number: 495
End Page Number: 517
Publication Date: May 1993
Journal: Journal of Economic Dynamics and Control
Authors: ,
Keywords: allocation: resources
Abstract:

A two-period model is considered. In period 1 the electric power company offers for sale a set of contracts (ρ1,p1), (ρ2,p2),.... Each consumer must select one contract k and d units of energy for which the consumer pays pkd. The company must deliver d units of energy in period 2 with probability ρk; the service may be interrupted with the complementary probability 1-ρk. The problem is to design the optimal set of contracts to maximize social welfare when demand and supply may be random and when customers suffer a welfare loss due to service interruption. The best design is shown to be a solution to an optimal control problem. The results contrast sharply with previous work on the problem of pricing electric power in the face of random supply or demand.

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