IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v27y2006i4p127-156.html
   My bibliography  Save this article

The Short-Run Effects of Time-Varying Prices in Competitive Electricity Markets

Author

Listed:
  • Stephen P. Holland
  • Erin T. Mansur

Abstract

We analyze the efficiency, distributional, and environmental effects of real-time pricing (RTP) adoption in the short run. Consistent with theory, our simulations of the PJM electricity market show that RTP adoption improves efficiency and compresses the distributions of loads and prices. Adoption increases average load but decreases operating profits with the largest decrease for oil-fired generation (59% when all customers adopt). Consumer surplus and welfare gains are modest (2.5% and 0.24% of the energy bill), and emissions of SO2 and NOx increase but CO2 emissions decrease. Approximately 30% of these efficiency gains could be captured by varying flat rates monthly instead of annually. Monthly flat rate adjustment has many of the same effects as RTP adoption, captures more of the deadweight loss than time of use (TOU) rates, and requires no new metering technology.

Suggested Citation

  • Stephen P. Holland & Erin T. Mansur, 2006. "The Short-Run Effects of Time-Varying Prices in Competitive Electricity Markets," The Energy Journal, , vol. 27(4), pages 127-156, October.
    • Handle: RePEc:sae:enejou:v:27:y:2006:i:4:p:127-156
    DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No4-6
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/ISSN0195-6574-EJ-Vol27-No4-6
    Download Restriction: no
    File URL: https://libkey.io/10.5547/ISSN0195-6574-EJ-Vol27-No4-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rassenti, Stephen J & Smith, Vernon L & Wilson, Bart J, 2003. "Discriminatory Price Auctions in Electricity Markets: Low Volatility at the Expense of High Price Levels," Journal of Regulatory Economics, Springer, vol. 23(2), pages 109-123, March.
    2. 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.
    3. Reiss, Peter C. & White, Matthew W., 2003. "Demand and Pricing in Electricity Markets: Evidence from San Diego During California's Energy Crisis," Research Papers 1829, Stanford University, Graduate School of Business.
    4. Peter C. Reiss & Matthew W. White, 2003. "Demand and Pricing in Electricity Markets: Evidence from San Diego During California's Energy Crisis," NBER Working Papers 9986, National Bureau of Economic Research, Inc.
    5. Douglas W. Caves & Laurits R. Christensen & Joseph A. Herriges, 1987. "The Neoclassical Model of Consumer Demand with Identically Priced Commodities: An Application to Time-of-Use Electricity Pricing," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 564-580, Winter.
    6. Caves, Douglas W. & Christensen, L. R. & Herriges, Joseph A., 1987. "Neoclassical Model of Consumer Demand with Identically Priced Commodities; And An Application to Time of Use Electricity Pricing," Staff General Research Papers Archive 10793, Iowa State University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. J. G. Hirschberg, 2000. "Modelling time of day substitution using the second moments of demand," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 979-986.
    2. Massimo Filippini, 1995. "Swiss Residential Demand for Electricity by Time-of-Use: An Application of the Almost Ideal Demand System," The Energy Journal, , vol. 16(1), pages 27-39, January.
    3. Herter, Karen & Wayland, Seth, 2010. "Residential response to critical-peak pricing of electricity: California evidence," Energy, Elsevier, vol. 35(4), pages 1561-1567.
    4. James B. Bushnell & Erin T. Mansur, 2005. "Consumption Under Noisy Price Signals: A Study Of Electricity Retail Rate Deregulation In San Diego," Journal of Industrial Economics, Wiley Blackwell, vol. 53(4), pages 493-513, December.
    5. Galetovic, Alexander & Muñoz, Cristián M., 2009. "Estimating deficit probabilities with price-responsive demand in contract-based electricity markets," Energy Policy, Elsevier, vol. 37(2), pages 560-569, February.
    6. Matthew J. Kotchen & Laura E. Grant, 2011. "Does Daylight Saving Time Save Energy? Evidence from a Natural Experiment in Indiana," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1172-1185, November.
    7. Woo, C.K. & Liu, Y. & Zarnikau, J. & Shiu, A. & Luo, X. & Kahrl, F., 2018. "Price elasticities of retail energy demands in the United States: New evidence from a panel of monthly data for 2001–2016," Applied Energy, Elsevier, vol. 222(C), pages 460-474.
    8. J. Micha Steinhäuser & Klaus Eisenack, 2015. "Spatial incidence of large-scale power plant curtailment costs," Working Papers V-379-15, University of Oldenburg, Department of Economics, revised Jul 2015.
    9. Burns, Kelly & Mountain, Bruce, 2021. "Do households respond to Time-Of-Use tariffs? Evidence from Australia," Energy Economics, Elsevier, vol. 95(C).
    10. Cappers, Peter A. & Todd-Blick, Annika, 2021. "Heterogeneity in own-price residential customer demand elasticities for electricity under time-of-use rates: Evidence from a randomized-control trial in the United States," Utilities Policy, Elsevier, vol. 73(C).
    11. Fan Zhang, 2015. "Energy Price Reform and Household Welfare: The Case of Turkey," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    12. Prasanna, Ashreeta & Mahmoodi, Jasmin & Brosch, Tobias & Patel, Martin K., 2018. "Recent experiences with tariffs for saving electricity in households," Energy Policy, Elsevier, vol. 115(C), pages 514-522.
    13. Mostafa Baladi, S. & Herriges, Joseph A. & Sweeney, Thomas J., 1998. "Residential response to voluntary time-of-use electricity rates," Resource and Energy Economics, Elsevier, vol. 20(3), pages 225-244, September.
    14. Ottavia Valentini & Nikoleta Andreadou & Paolo Bertoldi & Alexandre Lucas & Iolanda Saviuc & Evangelos Kotsakis, 2022. "Demand Response Impact Evaluation: A Review of Methods for Estimating the Customer Baseline Load," Energies, MDPI, vol. 15(14), pages 1-36, July.
    15. Galetovic, Alexander & Muñoz, Cristián M., 2011. "Regulated electricity retailing in Chile," Energy Policy, Elsevier, vol. 39(10), pages 6453-6465, October.
    16. Moschini, Giancarlo, 1991. "Testing for Preference Change in Consumer Demand: An Indirectly Separable, Semiparametric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 111-117, January.
    17. Woo, C.K. & Shiu, A. & Liu, Y. & Luo, X. & Zarnikau, J., 2018. "Consumption effects of an electricity decarbonization policy: Hong Kong," Energy, Elsevier, vol. 144(C), pages 887-902.
    18. Steinhäuser, J. Micha & Eisenack, Klaus, 2020. "How market design shapes the spatial distribution of power plant curtailment costs," Energy Policy, Elsevier, vol. 144(C).
    19. 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.
    20. Mountain, Dean C. & Lawson, Evelyn L., 1995. "Some initial evidence of Canadian responsiveness to time-of-use electricity rates: Detailed daily and monthly analysis," Resource and Energy Economics, Elsevier, vol. 17(2), pages 189-212, August.

    More about this item

    Keywords

    Electricity prices; real-time-pricing (RTP); TOU policy; competition; welfare;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:27:y:2006:i:4:p:127-156. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.