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Effects of Voluntary Time-of-Use Pricing on Summer Electricity Usage of Business Customers

Author

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  • Yueming Qiu

    (Arizona State University)

  • Loren Kirkeide

    (Salt River Project)

  • Yi David Wang

    (University of International Business and Economics)

Abstract

Economic inefficiency can be caused by time-invariant retail electricity prices because they do not reflect variations in the cost of providing electricity during the day. Time-of-use (TOU) pricing—higher electricity prices during peak hours and lower electricity prices during off-peak hours—is by far the most common way to achieve more efficient levels of electricity consumption through reducing peak demand. The empirical evidence of the effectiveness of TOU pricing is sparse in the commercial and industrial sectors and there is no consensus in the literature on the statistical significance and magnitude of the effects. Applying a quasi-experimental design, this study evaluates an ongoing experiment of voluntary business TOU pricing plan by a major utility company in the Phoenix metropolitan area. Using the nearest-neighbor matching method, we identify control customers for the voluntary participants of the business TOU pricing. From difference-in-differences analysis, we find a statistically significant reduction in peak-hour electricity demand in response to the TOU pricing. We also find that there is no conservation effect, meaning that the total level of electricity consumption does not change under the TOU pricing.

Suggested Citation

  • Yueming Qiu & Loren Kirkeide & Yi David Wang, 2018. "Effects of Voluntary Time-of-Use Pricing on Summer Electricity Usage of Business Customers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(2), pages 417-440, February.
    • Handle: RePEc:kap:enreec:v:69:y:2018:i:2:d:10.1007_s10640-016-0084-5
    DOI: 10.1007/s10640-016-0084-5
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    Cited by:

    1. Olsthoorn, Mark & Schleich, Joachim & Wohlfarth, Katharina & Klobasa, Marian, 2019. "How much load flexibility can a euro buy? Findings from a contingent valuation experiment with companies in the German commerce and services sector," Energy Economics, Elsevier, vol. 84(S1).
    2. Jing Liang & Yueming Qiu & Bo Xing, 2021. "Social Versus Private Benefits of Energy Efficiency Under Time-of-Use and Increasing Block Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 43-75, January.
    3. Zhaohua Wang & Bin Lu & Bo Wang & Yueming (Lucy) Qiu & Han Shi & Bin Zhang & Jingyun Li & Hao Li & Wenhui Zhao, 2023. "Incentive based emergency demand response effectively reduces peak load during heatwave without harm to vulnerable groups," Nature Communications, Nature, vol. 14(1), pages 1-11, December.
    4. Lang, Corey & Qiu, Yueming (Lucy) & Dong, Luran, 2023. "Increasing voluntary enrollment in time-of-use electricity rates: Findings from a survey experiment," Energy Policy, Elsevier, vol. 173(C).
    5. Olsthoorn, Mark & Schleich, Joachim & Wohlfarth, Katharina & Klobasa, Marian, 2018. "How much load flexibility can a euro buy? Findings from a choice experiment with companies in the German commerce and services sector," Working Papers "Sustainability and Innovation" S20/2018, Fraunhofer Institute for Systems and Innovation Research (ISI).
    6. Ku, Arthur Lin & Qiu, Yueming (Lucy) & Lou, Jiehong & Nock, Destenie & Xing, Bo, 2022. "Changes in hourly electricity consumption under COVID mandates: A glance to future hourly residential power consumption pattern with remote work in Arizona," Applied Energy, Elsevier, vol. 310(C).
    7. Wang, Xiaolei & Wei, Chunxin & Wang, Yanhua, 2022. "Does the current tiered electricity pricing structure still restrain electricity consumption in China's residential sector?," Energy Policy, Elsevier, vol. 165(C).
    8. Chin Hui Hao & Presley K. Wesseh & David Iheke Okorie & Hermas Abudu, 2023. "Implications of Growing Wind and Solar Penetration in Retail Electricity Markets with Gradual Demand Response," Energies, MDPI, vol. 16(23), pages 1-15, December.

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    More about this item

    Keywords

    Time-of-use pricing; Business customers; Electricity; Matching; Difference-in-differences;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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