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The spillover effect of peak pricing

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  • Guo, Bowei

Abstract

Understanding consumer behaviours is important in designing dynamic tariffs, which are usually considered the first-best solution when the conventional flat tariff does not reflect the varying cost of electricity generation. I estimate households’ own- and cross-price elasticities using dataset from a smart metering project, and investigate which household specific characteristics determine the impact of peak prices on electricity consumption. I find peak prices (17:00–20:00) reduce peak and post-peak consumption (20:00–23:00), indicating a spillover effect of peak prices. The underlying mechanisms that could be generating the spillover effect have been further discussed and investigated. Finally, I estimate dynamic tariffs’ distributional and welfare effects, and demonstrate that the spillover effect is crucial in determining the cost effectiveness of a smart metering programme.

Suggested Citation

  • Guo, Bowei, 2023. "The spillover effect of peak pricing," Journal of Environmental Economics and Management, Elsevier, vol. 121(C).
    • Handle: RePEc:eee:jeeman:v:121:y:2023:i:c:s0095069623000633
    DOI: 10.1016/j.jeem.2023.102845
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    Keywords

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    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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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