IDEAS home Printed from https://ideas.repec.org/p/fce/doctra/1211.html
   My bibliography  Save this paper

Real-time pricing when consumers have saving costs

Author

Listed:
  • Evens Salies

    () (Observatoire Francais des Conjonctures Economiques)

Abstract

Effectiveness of real-time electricity prices depends upon consumers being willing to subscribe to them and being able to curb their consumption levels. The present paper addresses both issues by considering consumers differentiated by their saving costs in the stylized real-time pricing model put forward by Chao, 2010, Price-responsive demand management for a smart grid world, The Electricity Journal, 23, 7-20. The present paper shows that when consumers are free to adopt real-time prices, and half the consumer population is pro-real-time prices (i.e. have zero or negative saving costs), producers do not offer sufficient incentives in return for efficient usage of electricity. They instead prefer to charge inefficient prices and discriminate against the portion of the consumer population who has no saving costs. We also find that efficient marginal cost pricing, although feasible, is not compatible with adoption of real-time prices by all consumers. Overall, our results cast some doubt about the allocative efficiency of real-time pricing, whether it is compulsory or not.

Suggested Citation

  • Evens Salies, 2012. "Real-time pricing when consumers have saving costs," Documents de Travail de l'OFCE 2012-11, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1211
    as

    Download full text from publisher

    File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2012-11.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bernard, Jean-Thomas & Roland, Michel, 2000. "Load management programs, cross-subsidies and transaction costs: the case of self-rationing," Resource and Energy Economics, Elsevier, vol. 22(2), pages 161-188, May.
    2. Chao, Hung-po, 2010. "Price-Responsive Demand Management for a Smart Grid World," The Electricity Journal, Elsevier, vol. 23(1), pages 7-20, January.
    3. Rasanen, Mika & Ruusunen, Jukka & Hamalainen, Raimo P., 1997. "Optimal tariff design under consumer self-selection," Energy Economics, Elsevier, vol. 19(2), pages 151-167, May.
    4. Yamamoto, Yoshihiro & Suzuki, Akihiko & Fuwa, Yasuhiro & Sato, Tomohiro, 2008. "Decision-making in electrical appliance use in the home," Energy Policy, Elsevier, vol. 36(5), pages 1679-1686, May.
    5. Train, Kenneth E & McFadden, Daniel L & Goett, Andrew A, 1987. "Consumer Attitudes and Voluntary Rate Schedules for Public Utilities," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 383-391, August.
    6. Banfi, Silvia & Farsi, Mehdi & Filippini, Massimo & Jakob, Martin, 2008. "Willingness to pay for energy-saving measures in residential buildings," Energy Economics, Elsevier, vol. 30(2), pages 503-516, March.
    7. Evens Salies, 2010. "Penalizing Consumers for Saving Electricity," Economics Bulletin, AccessEcon, vol. 30(2), pages 1144-1153.
    8. Wall, Rob & Crosbie, Tracey, 2009. "Potential for reducing electricity demand for lighting in households: An exploratory socio-technical study," Energy Policy, Elsevier, vol. 37(3), pages 1021-1031, March.
    9. Horowitz, I. & Woo, C.K., 2006. "Designing Pareto-superior demand-response rate options," Energy, Elsevier, vol. 31(6), pages 1040-1051.
    10. Brown, Paul M. & Cameron, Linda D., 2000. "What can be done to reduce overconsumption?," Ecological Economics, Elsevier, vol. 32(1), pages 27-41, January.
    11. Aubin, Christophe, et al, 1995. "Real-Time Pricing of Electricity for Residential Customers: Econometric Analysis of an Experiment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages 171-191, Suppl. De.
    12. Maréchal, Kevin, 2010. "Not irrational but habitual: The importance of "behavioural lock-in" in energy consumption," Ecological Economics, Elsevier, vol. 69(5), pages 1104-1114, March.
    13. repec:spo:wpecon:info:hdl:2441/5k7940uimfdf9c898a1ol5436 is not listed on IDEAS
    14. Orans, Ren & Woo, C.K. & Horii, Brian & Chait, Michele & DeBenedictis, Andrew, 2010. "Electricity Pricing for Conservation and Load Shifting," The Electricity Journal, Elsevier, vol. 23(3), pages 7-14, April.
    15. Soren Leth-Petersen, 2007. "Habit Formation and Consumption of Energy for Heating: Evidence from a Panel of Danish Households," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 35-54.
    16. Faruqui, A. & Hajos, A. & Hledik, R.M. & Newell, S.A., 2010. "Fostering economic demand response in the Midwest ISO," Energy, Elsevier, vol. 35(4), pages 1544-1552.
    17. Train, Kenneth E, 1994. "Self-Selecting Tariffs under Pure Preferences among Tariffs," Journal of Regulatory Economics, Springer, vol. 6(3), pages 247-264, September.
    18. Steg, Linda, 2008. "Promoting household energy conservation," Energy Policy, Elsevier, vol. 36(12), pages 4449-4453, December.
    19. Neumann, Scott & Sioshansi, Fereidoon & Vojdani, Ali & Yee, Gaymond, 2006. "How to Get More Response from Demand Response," The Electricity Journal, Elsevier, vol. 19(8), pages 24-31, October.
    20. Rochlin, Cliff, 2009. "The Alchemy of Demand Response: Turning Demand into Supply," The Electricity Journal, Elsevier, vol. 22(9), pages 10-25, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    real-time pricing; energy conservation; price discrimination; demand response programs;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:fce:doctra:1211. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francesco Saraceno). General contact details of provider: http://edirc.repec.org/data/ofcspfr.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.