Monte Carlo Analysis of Real-Time Electricity Pricing for Industrial Loads

Maintaining a competitive industrial business demands close cost control. Free market wholesale electricity suppliers offer a variety of purchase agreements. Suppliers now offer real-time pricing to all customer classes with the promise of potential savings. Real-time price tariffs mirror the dynamic nature of the wholesale electricity market. This market exhibits high price volatility due to constantly changing demand and lack of large-scale electricity storage technology. Businesses may benefit from these market changes depending on their load characteristics. This paper uses Monte Carlo analysis to determine the potential economic benefit of adopting a real-time price rate under different load parameters. Sections of this paper introduce load models for electric demand, define a benefit model, develop an expression for equivalent break-even fixed rates, examine parametric variation, and record simulation results. Simulations show that businesses with a high load factor have a greater probability of profiting from real-time price tariffs without adopting any load control strategy. Businesses with low load factors require higher equivalent break-even rates to benefit from realtime price tariffs. Introduction A competitive industrial business must pay attention to all production costs and take advantage of all process improvements that provide potential savings. Free market electricity increased the number of energy suppliers and created opportunities to reduce electricity costs. These suppliers offer a wide variety of service agreements that may reduce customer costs when compared to fixed rate tariffs, but customers must assume Carl J. Spezia is an Assistant Professor in the Electrical Engineering Technology Program in the Department of Technology at Southern Illinois University Carbondale (SIUC). He joined the program in1998 as a Visiting Assistant Professor. He has eight years of utility experience as a power systems engineer and is a licensed professional engineer in Illinois. His industrial assignments included power system modeling, power systems protection, and substation design. He received his M.S. and Ph.D. from SIUC in 1991 and 2002 respectively. He teaches courses in electric power and machinery, industrial automation, and electric circuits. He won outstanding departmental teaching awards two of the last five years. His research interests include power systems economics, power markets, and electric energy management. load curtailment risk and high price volatility (Borenstein, 2006). Electricity price control is especially important in high consumption industry sub-sectors. Federal government statistics show that the top five sub-sector electricity consumers are chemicals, primary metals, food, paper and transportation equipment (Energy Information Administration, 2009). These subsectors can realize significant savings by studying consumption patterns and alternative tariffs. Suppliers now market to all customer classes a real-time price (RTP) tariff as a cost saving alternative to the fixed rate tariff (Power Smart Pricing, 2008). Over 70 U.S. based utilities offer RTP tariffs on a permanent or pilot basis to various customer classes (Barbose et al, 2004). Programs exist in every region of the country and have varying levels of acceptance. The programs help mitigate suppliers’ market power and reduce price volatility by sending economic signals to customers that allow them to modify their power demand based on market price. The RTP tariff gives customers access to the daily price variations of the wholesale electricity market. These prices reflect the hourly supply and demand conditions on the grid and are highly volatile. Although this tariff may have savings potential, customers must study their load pattern and compare it to the RTP before adopting the tariff. Load patterns that peak coincident to RTP rates introduce higher electricity costs, especially for sustained load peaks. Customers who require steam for industrial processes can co-generate elec-