The electrical grid is designed to meet peak loads, which may occur for only a few hours each year. Consequently, there are significant economic gains from a reduction in the peak load. Air conditioner (AC) load from residential buildings forms a significant portion of peak summer loads. The existing ‘peaksaver’ program in Ontario attempts to reduce AC loads by setting thermostats a few degrees higher in volunteer households on hot summer days. This has had only a limited success. To address this issue, we propose a scheme that provides monetary incentive for participation. We describe the operation of this ‘temperature market’ and demonstrate its effectiveness with a heterogeneous population of potential participants. We find that even a payment of $2 per hour of setback can reduce grid operating costs by $688 million over a period of 20 years.
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