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Which Smart Electricity Service Contracts Will Consumers Accept? The demand for compensation in a platform market

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  • Laura-Lucia Richter
  • Michael G. Pollitt

Abstract

This paper considers the heterogeneity of household consumer preferences for electricity service contracts in a smart grid context. The analysis is based on original data from a discrete choice experiment on smart electricity service contracts that was designed and conducted in collaboration with Accent and 1,892 UK electricity consumers in 2015. The results suggest that while customers are willing to pay for technical support services, they are likely to demand significant compensation to share their usage and personally identifying data and to participate in automated demand response programs. Based on these findings potential platform pricing strategies that could incentivise consumers to participate in a smart electricity platform market are discussed. By combining appropriate participation payments with sharing of bill savings, service providers could attract the number of customers required to provide the optimal level of demand response. We also examine the significant heterogeneity among customers to suggest how, by targeting customers with specific characteristics, smart electricity service providers could significantly reduce their customer acquisition costs.

Suggested Citation

  • Laura-Lucia Richter & Michael G. Pollitt, 2016. "Which Smart Electricity Service Contracts Will Consumers Accept? The demand for compensation in a platform market," Cambridge Working Papers in Economics 1632, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1632
    Note: llr23
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    More about this item

    Keywords

    Discrete Choice Experiment; smart energy; Willingness-to-Accept; platform markets;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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