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 then 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. Likewise the value proposition for integrating demand response into the electricity supply portfolio hinges on aggregating retail level response into wholesale products that will compete with conventional resources and will affect system operations and planning practices.  We then describe a model that is based on the concept of priority service where customer voluntarily subscribe to efficient rationing by choosing different levels of supply reliability for segment of their loads which they can reallocate at will within the household. We review the underlying mechanism design theory for such efficient rationing with alternative implementation forms and illustrate by means of an example the potential economic gains of such an approach.