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arXiv · 2605.16794

Modeling Coincident Peak Pricing in Electricity Markets: Challenges and Peak Shaving Effectiveness

Qian Zhang·Sadie Zhao·Lucy Diao·Conleigh Byers·Yiling Chen·Derya Cansever·Le Xie
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Abstract

Coincident Peak (CP) pricing is widely used in U.S. electricity markets to allocate capacity and transmission costs. This paper develops a behavioral game-theoretic framework for CP-driven load shifting that couples a nonlinear cost-allocation model with day-ahead (one-shot) and real-time (sequential-learning) decision processes. We examine two update rules, namely best-response dynamics (BRD) and fictitious-play dynamics (FPD), across continuous and finite action spaces to quantify how flexibility, action resolution, and participation influence peak outcomes. Using ERCOT peak-day data, we find that FPD reliably reduces system peaks, whereas BRD is more variable and can increase peaks under tight-capacity conditions. Finer action resolution improves peak shaving, while the number of participants is largely neutral when aggregate flexibility is fixed. Meanwhile, information-provider signals can induce herding, whereas response-aware or diverse signals improve peak shaving. These results highlight both the potential and limits of CP pricing: smoothing information and enabling granular control are as important as the amount of available flexibility. The framework offers practical guidance for system operators and consumers: For ISOs, broadcasting smoothed CP signals and setting minimum controllable-capacity thresholds enhance coordination. For consumers, greater flexibility and finer control resolution improve both cost savings and peak-shaving performance.

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Qian Zhang, Sadie Zhao, Lucy Diao, Conleigh Byers, Yiling Chen, Derya Cansever, Le Xie. 2026-06-04. Modeling Coincident Peak Pricing in Electricity Markets: Challenges and Peak Shaving Effectiveness. https://arxiv.org/abs/2605.16794

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