The Importance of an Active Demand Side in the Electricity Industry
1 November 2001
By Hamish Fraser
In the long term, electricity markets will only work properly, like markets for other products, when there is an active demand side. This will involve hourly metering and tariff reform so that enough consumption is priced on an hourly basis.
The alternative to an active demand side in the electricity industry is employing socialized reliability solutions, such as installed capacity markets. However, all socialized reliability solutions raise complex issues. Unfortunately, experience strongly suggests that there will not be a meaningful demand response quickly, resulting in unavoidable socialized reliability solutions in the short term. These solutions must be regarded as transitional, smoothing the path towards market-based reliability through an active demand side.
This article was published in The Electricity Journal, November 2001.
