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The hidden cost of real time electricity pricing

Author

Listed:
  • Ioana Bejan

    (Department of Food and Resource Economics, University of Copenhagen)

  • Carsten Lynge Jensen

    (Department of Food and Resource Economics, University of Copenhagen)

  • Laura M. Andersen

    (Department of Food and Resource Economics, University of Copenhagen)

  • Lars Gårn Hansen

    (Department of Food and Resource Economics, University of Copenhagen)

Abstract

In theory real time pricing ensures more efficient electricity markets than time of use pricing. However, people are prone to habits and regularity, so real time pricing may impose a greater cost of reacting on consumers. In a randomized field experiment we compared the cost of reacting to incentives under these two pricing regimes. We utilized smart-metered hourly power consumption to unobtrusively measure treatment effects. We found that real time pricing reduces consumer surplus from reacting to incentives by half, compared to reacting under a corresponding time of use pricing regime. This suggests a substantial economic value to households of the regularity and predictability provided by time of use pricing.

Suggested Citation

  • Ioana Bejan & Carsten Lynge Jensen & Laura M. Andersen & Lars Gårn Hansen, 2019. "The hidden cost of real time electricity pricing," IFRO Working Paper 2019/03, University of Copenhagen, Department of Food and Resource Economics.
    • Handle: RePEc:foi:wpaper:2019_03
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    File URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2019/IFRO_WP_2019_03.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Mier, Mathias, 2021. "Efficient pricing of electricity revisited," Energy Economics, Elsevier, vol. 104(C).

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    More about this item

    Keywords

    real time electricity pricing; time of use electricity pricing; field experiment; household cost of reacting;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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