Transitioning to time-of-use pricing: Behavioral insights from Jeju Island residential electricity customers

As demand response (DR) strategies such as time-of-use (TOU) pricing gain renewed attention amid rising integration of variable renewable energy, evaluating their effectiveness requires careful consideration of existing incentives or penalties embedded in current tariff schemes. This study provides an early assessment of the behavioral effects of the TOU program that began rolling out across Jeju Island, Korea, in 2021. Implemented in parallel with a highly progressive increasing block pricing (IBP) scheme, the opt-in TOU is corrective in nature—offering peak rates below top-tier IBP rates to address cross-subsidies inherent in the current IBP structure. Using a difference-in-differences approach and a two-level electricity demand model following Hausman et al. (1979), we analyze both within-day and overall daily consumption effects of TOU adoption. Results show that households that opted into the TOU shifted electricity usage toward off-peak hours, reducing their mid- and peak-period consumption shares. The estimated price responsiveness of usage ratios during the peak period and mid-peak period is -5.8% and -11.8%, respectively. However, total daily electricity consumption increased, offsetting much of the intended peak-load reduction. This counterintuitive outcome stems from selective TOU adoption by high-usage households who, once exempt from IBP’s cross-subsidy penalties, increased their baseline usage. These findings suggest that TOU designs with steeper peak-to-off-peak price differentials and lower fixed charges, thereby increasing average rates, can achieve peak reduction goals without undermining revenue neutrality or consumer welfare. Our study provides policy-relevant insights for integrating opt-in DR mechanisms within existing electricity tariff regimes.