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Smart meter, customer choice and profitable time-of-use rate option

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  • Hartway, Rob
  • Price, Snuller
  • Woo, C.K

Abstract

We describe the results of a time-of-use (TOU) rate option experiment which demonstrates that offering a TOU option can be profitable to a utility. The option's profitability is attributable to: (1) smart meters; (2) large price differentials between TOU periods that minimize the adverse selection problem of free-riders; and (3) the success of marketing efforts that enhance customer acceptance. This finding refutes the common belief that rate options are necessarily unprofitable to a utility and unwanted by small users. We explore the significance and relevance of our findings in the emerging world or retail access. TOU rate options will continue to be useful to unregulated energy suppliers, regulated wires companies and electricity consumers.

Suggested Citation

  • Hartway, Rob & Price, Snuller & Woo, C.K, 1999. "Smart meter, customer choice and profitable time-of-use rate option," Energy, Elsevier, vol. 24(10), pages 895-903.
    • Handle: RePEc:eee:energy:v:24:y:1999:i:10:p:895-903
    DOI: 10.1016/S0360-5442(99)00040-7
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    Cited by:

    1. Chou, Jui-Sheng & Gusti Ayu Novi Yutami, I, 2014. "Smart meter adoption and deployment strategy for residential buildings in Indonesia," Applied Energy, Elsevier, vol. 128(C), pages 336-349.
    2. Elena Claire Ricci, 2013. "Smart-Grids and Climate Change. Consumer adoption of smart energy behaviour: a system dynamics approach to evaluate the mitigation potential," Working Papers 2013.71, Fondazione Eni Enrico Mattei.
    3. Abolhosseini, Shahrouz & Heshmati, Almas & Altmann, Jörn, 2014. "A Review of Renewable Energy Supply and Energy Efficiency Technologies," IZA Discussion Papers 8145, Institute of Labor Economics (IZA).
    4. Batalla-Bejerano, Joan & Trujillo-Baute, Elisa & Villa-Arrieta, Manuel, 2020. "Smart meters and consumer behaviour: Insights from the empirical literature," Energy Policy, Elsevier, vol. 144(C).
    5. Jacqueline Corbett, 2013. "Using information systems to improve energy efficiency: Do smart meters make a difference?," Information Systems Frontiers, Springer, vol. 15(5), pages 747-760, November.
    6. Shahrouz Abolhosseini & Almas Heshmati & Jorn Altmann, 2014. "The Effect of Renewable Energy Development on Carbon Emission Reduction: An Empirical Analysis for the EU-15 Countries," TEMEP Discussion Papers 2014109, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Mar 2014.
    7. 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.
    8. Guo, Peiyang & Lam, Jacqueline C.K. & Li, Victor O.K., 2019. "Drivers of domestic electricity users’ price responsiveness: A novel machine learning approach," Applied Energy, Elsevier, vol. 235(C), pages 900-913.
    9. Axel Gautier & Julien Jacqmin & Jean-Christophe Poudou, 2018. "The prosumers and the grid," Journal of Regulatory Economics, Springer, vol. 53(1), pages 100-126, February.
    10. Dong Gu Choi & Michael K. Lim & Karthik Murali & Valerie M. Thomas, 2020. "Why Have Voluntary Time‐of‐Use Tariffs Fallen Short in the Residential Sector?," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 617-642, March.
    11. Torriti, Jacopo, 2012. "Price-based demand side management: Assessing the impacts of time-of-use tariffs on residential electricity demand and peak shifting in Northern Italy," Energy, Elsevier, vol. 44(1), pages 576-583.
    12. Nicolson, Moira L. & Fell, Michael J. & Huebner, Gesche M., 2018. "Consumer demand for time of use electricity tariffs: A systematized review of the empirical evidence," Renewable and Sustainable Energy Reviews, Elsevier, vol. 97(C), pages 276-289.
    13. Woo, C.K. & Sreedharan, P. & Hargreaves, J. & Kahrl, F. & Wang, J. & Horowitz, I., 2014. "A review of electricity product differentiation," Applied Energy, Elsevier, vol. 114(C), pages 262-272.
    14. He, Yongxiu & Wang, Bing & Wang, Jianhui & Xiong, Wei & Xia, Tian, 2012. "Residential demand response behavior analysis based on Monte Carlo simulation: The case of Yinchuan in China," Energy, Elsevier, vol. 47(1), pages 230-236.
    15. Woo, C.K. & Li, R. & Shiu, A. & Horowitz, I., 2013. "Residential winter kWh responsiveness under optional time-varying pricing in British Columbia," Applied Energy, Elsevier, vol. 108(C), pages 288-297.
    16. Herter, Karen, 2007. "Residential implementation of critical-peak pricing of electricity," Energy Policy, Elsevier, vol. 35(4), pages 2121-2130, April.
    17. Newsham, Guy R. & Birt, Benjamin J. & Rowlands, Ian H., 2011. "A comparison of four methods to evaluate the effect of a utility residential air-conditioner load control program on peak electricity use," Energy Policy, Elsevier, vol. 39(10), pages 6376-6389, October.
    18. Sadiq Ahmad & Ayaz Ahmad & Muhammad Naeem & Waleed Ejaz & Hyung Seok Kim, 2018. "A Compendium of Performance Metrics, Pricing Schemes, Optimization Objectives, and Solution Methodologies of Demand Side Management for the Smart Grid," Energies, MDPI, vol. 11(10), pages 1-33, October.
    19. Strong, Derek Ryan, 2017. "The Early Diffusion of Smart Meters in the US Electric Power Industry," Thesis Commons 7zprk, Center for Open Science.
    20. Granell, Ramon & Axon, Colin J. & Wallom, David C.H., 2014. "Predicting winning and losing businesses when changing electricity tariffs," Applied Energy, Elsevier, vol. 133(C), pages 298-307.
    21. Moon, Sang-Keun & Kim, Jin-O, 2017. "Balanced charging strategies for electric vehicles on power systems," Applied Energy, Elsevier, vol. 189(C), pages 44-54.
    22. Newsham, Guy R. & Bowker, Brent G., 2010. "The effect of utility time-varying pricing and load control strategies on residential summer peak electricity use: A review," Energy Policy, Elsevier, vol. 38(7), pages 3289-3296, July.
    23. Chou, Jui-Sheng & Kim, Changwan & Ung, Thanh-Khiet & Yutami, I Gusti Ayu Novi & Lin, Guo-Tai & Son, Hyojoo, 2015. "Cross-country review of smart grid adoption in residential buildings," Renewable and Sustainable Energy Reviews, Elsevier, vol. 48(C), pages 192-213.

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