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Rethinking real-time electricity pricing

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  • Allcott, Hunt

Abstract

Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. This paper evaluates the first program to expose residential consumers to hourly real-time pricing (RTP). I find that enrolled households are statistically significantly price elastic and that consumers responded by conserving energy during peak hours, but remarkably did not increase average consumption during off-peak times. The program increased consumer surplus by $10 per household per year. While this is only one to two percent of electricity costs, it illustrates a potential additional benefit from investment in retail Smart Grid applications, including the advanced electricity meters required to observe a household’s hourly consumption.

Suggested Citation

  • Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, vol. 33(4), pages 820-842.
  • Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:820-842
    DOI: 10.1016/j.reseneeco.2011.06.003
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    References listed on IDEAS

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    1. Herriges, Joseph A, et al, 1993. "The Response of Industrial Customers to Electric Rates Based upon Dynamic Marginal Costs," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 446-454, August.
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    More about this item

    Keywords

    Real time electricity pricing; Energy demand; Randomized field experiments;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • 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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