Real-time pricing when consumers have saving costs
AbstractEffectiveness of real-time electricity prices depends upon consumers being willing to subscribe to them and being able to curb their consumption levels. The present paper addresses both issues by considering consumers differentiated by their saving costs in the stylized real-time pricing model put forward by Chao, 2010, Price-responsive demand management for a smart grid world, The Electricity Journal, 23, 7-20. The present paper shows that when consumers are free to adopt real-time prices, and half the consumer population is pro-real-time prices (i.e. have zero or negative saving costs), producers do not offer sufficient incentives in return for efficient usage of electricity. They instead prefer to charge inefficient prices and discriminate against the portion of the consumer population who has no saving costs. We also find that efficient marginal cost pricing, although feasible, is not compatible with adoption of real-time prices by all consumers. Overall, our results cast some doubt about the allocative efficiency of real-time pricing, whether it is compulsory or not.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2012-11.
Date of creation: Mar 2012
Date of revision:
real-time pricing; energy conservation; price discrimination; demand response programs;
Other versions of this item:
- Evens Salies, 2012. "Real-time pricing when consumers have saving costs," Sciences Po publications 2012-11, Sciences Po.
- D1 - Microeconomics - - Household Behavior
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wall, Rob & Crosbie, Tracey, 2009. "Potential for reducing electricity demand for lighting in households: An exploratory socio-technical study," Energy Policy, Elsevier, vol. 37(3), pages 1021-1031, March.
- Rochlin, Cliff, 2009. "The Alchemy of Demand Response: Turning Demand into Supply," The Electricity Journal, Elsevier, vol. 22(9), pages 10-25, November.
- Train, Kenneth E, 1994. "Self-Selecting Tariffs under Pure Preferences among Tariffs," Journal of Regulatory Economics, Springer, vol. 6(3), pages 247-64, September.
- Soren Leth-Petersen, 2007. "Habit Formation and Consumption of Energy for Heating: Evidence from a Panel of Danish Households," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 35-54.
- Roland, Michel & Bernard, Jean-Thomas, 1996.
"Load Management Programs, Cross-Subsidies and Transaction Costs: the Case of Self-Rationing,"
Cahiers de recherche
9617, Université Laval - Département d'économique.
- Bernard, Jean-Thomas & Roland, Michel, 2000. "Load management programs, cross-subsidies and transaction costs: the case of self-rationing," Resource and Energy Economics, Elsevier, vol. 22(2), pages 161-188, May.
- Roland, M. & Bernard, J.T., 1996. "Load Management Programs, Cross-Subsidies and Transaction Costs: The Case of Self-Rationing," Papers 9617, Laval - Recherche en Energie.
- Aubin, Christophe & Fougère, Denis & Husson, Emmanuel & Ivaldi, Marc, 1994.
"Real-Time Pricing of Electricity of Residential Customers: Econometric Analysis of an Experiment,"
IDEI Working Papers
46, Institut d'Économie Industrielle (IDEI), Toulouse.
- Aubin, Christophe, et al, 1995. "Real-Time Pricing of Electricity for Residential Customers: Econometric Analysis of an Experiment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S171-91, Suppl. De.
- Train, Kenneth E & McFadden, Daniel L & Goett, Andrew A, 1987. "Consumer Attitudes and Voluntary Rate Schedules for Public Utilities," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 383-91, August.
- Evens Salies, 2010.
"Penalizing consumers for saving electricity,"
Sciences Po publications
info:hdl:2441/5k7940uimfd, Sciences Po.
- Maréchal, Kevin, 2010. "Not irrational but habitual: The importance of "behavioural lock-in" in energy consumption," Ecological Economics, Elsevier, vol. 69(5), pages 1104-1114, March.
- Silvia Banfi & Mehdi Farsi & Massimo Filippini & Martin Jakob, 2005.
"Willingness to Pay for Energy-Saving Measures in Residential Buildings,"
CEPE Working paper series
05-41, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Banfi, Silvia & Farsi, Mehdi & Filippini, Massimo & Jakob, Martin, 2008. "Willingness to pay for energy-saving measures in residential buildings," Energy Economics, Elsevier, vol. 30(2), pages 503-516, March.
- Steg, Linda, 2008. "Promoting household energy conservation," Energy Policy, Elsevier, vol. 36(12), pages 4449-4453, December.
- Brown, Paul M. & Cameron, Linda D., 2000. "What can be done to reduce overconsumption?," Ecological Economics, Elsevier, vol. 32(1), pages 27-41, January.
- Neumann, Scott & Sioshansi, Fereidoon & Vojdani, Ali & Yee, Gaymond, 2006. "How to Get More Response from Demand Response," The Electricity Journal, Elsevier, vol. 19(8), pages 24-31, October.
- Rasanen, Mika & Ruusunen, Jukka & Hamalainen, Raimo P., 1997. "Optimal tariff design under consumer self-selection," Energy Economics, Elsevier, vol. 19(2), pages 151-167, May.
- Chao, Hung-po, 2010. "Price-Responsive Demand Management for a Smart Grid World," The Electricity Journal, Elsevier, vol. 23(1), pages 7-20, January.
- Yamamoto, Yoshihiro & Suzuki, Akihiko & Fuwa, Yasuhiro & Sato, Tomohiro, 2008. "Decision-making in electrical appliance use in the home," Energy Policy, Elsevier, vol. 36(5), pages 1679-1686, May.
- Faruqui, A. & Hajos, A. & Hledik, R.M. & Newell, S.A., 2010. "Fostering economic demand response in the Midwest ISO," Energy, Elsevier, vol. 35(4), pages 1544-1552.
- Orans, Ren & Woo, C.K. & Horii, Brian & Chait, Michele & DeBenedictis, Andrew, 2010. "Electricity Pricing for Conservation and Load Shifting," The Electricity Journal, Elsevier, vol. 23(3), pages 7-14, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francesco Saraceno).
If references are entirely missing, you can add them using this form.