Real-time pricing when consumers have saving costs
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.
|Date of creation:||Mar 2012|
|Date of revision:|
|Contact details of provider:|| Postal: 69, quai d'Orsay - 75007 PARIS|
Phone: 01 44 18 54 00
Fax: 01 45 56 06 15
Web page: http://www.ofce.sciences-po.fr/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Roland, M. & Bernard, J.T., 1996.
"Load Management Programs, Cross-Subsidies and Transaction Costs: The Case of Self-Rationing,"
9617, Laval - Recherche en Energie.
- 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.
- Roland, Michel & Bernard, Jean-Thomas, 1996. "Load Management Programs, Cross-Subsidies and Transaction Costs: the Case of Self-Rationing," Cahiers de recherche 9617, Université Laval - Département d'économique.
- Aubin, Christophe & Fougère, Denis & Husson, Emmanuel & Ivaldi, Marc, 1994.
"Real-Time Pricing of Electricity of Residential Customers: Econometric Analysis of an Experiment,"
IDEI Working Papers
46, Institut d'Économie Industrielle (IDEI), Toulouse.
- 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 S171-91, Suppl. De.
- Evens Salies, 2010.
"Penalizing Consumers for Saving Electricity,"
AccessEcon, vol. 30(2), pages 1144-1153.
- 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.
- Chao, Hung-po, 2010. "Price-Responsive Demand Management for a Smart Grid World," The Electricity Journal, Elsevier, vol. 23(1), pages 7-20, January.
- Banfi, Silvia & Farsi, Mehdi & Filippini, Massimo & Jakob, Martin, 2008.
"Willingness to pay for energy-saving measures in residential buildings,"
Elsevier, vol. 30(2), pages 503-516, March.
- Silvia Banfi & Mehdi Farsi & Massimo Filippini & Martin Jakob, 2005. "Willingness to Pay for Energy-Saving Measures in Residential Buildings," CEPE Working paper series 05-41, CEPE Center for Energy Policy and Economics, ETH Zurich.
- 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.
- 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.
- 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.
- 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.
- 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.
- Steg, Linda, 2008. "Promoting household energy conservation," Energy Policy, Elsevier, vol. 36(12), pages 4449-4453, December.
- 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 383-91, August.
- Rochlin, Cliff, 2009. "The Alchemy of Demand Response: Turning Demand into Supply," The Electricity Journal, Elsevier, vol. 22(9), pages 10-25, November.
- 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.
- Brown, Paul M. & Cameron, Linda D., 2000. "What can be done to reduce overconsumption?," Ecological Economics, Elsevier, vol. 32(1), pages 27-41, January.
- Horowitz, I. & Woo, C.K., 2006. "Designing Pareto-superior demand-response rate options," Energy, Elsevier, vol. 31(6), pages 1040-1051.
- repec:spo:wpecon:info:hdl:2441/5k7940uimfdf9c898a1ol5436 is not listed on IDEAS
- Train, Kenneth E, 1994. "Self-Selecting Tariffs under Pure Preferences among Tariffs," Journal of Regulatory Economics, Springer, vol. 6(3), pages 247-64, September.
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)
If references are entirely missing, you can add them using this form.