A Historical Perspective and Business Model for Load Response Aggregation Based on Priority Service

We review early technologies and experiments in the 1980´s for implementing demand response. We argue that while new smart grid technologies are cheaper and provide more functionality the barrier to demand response implementation at the retail level lies in the development of business models that will incentivize customer participation on the retail side and facilitate integration of the aggregate responses into the wholesale market. We then describe such a model that is based on the concept of priority service where customer can choose different levels of interruption for segments of their loads which they can reallocate at will within the household. We review the theory of efficient pricing of such service along with alternative implementation forms. We then illustrate by means of an example the potential economic gains of such an approach.