Pricing policies for efficient demand side management in liberalized electricity markets

Aitor Ciarreta, Maria Paz Espinosa and Cristina Pizarro-Irizar

Economic Modelling, 2023, vol. 121, issue C

Abstract: International experience has shown that electricity consumers react to pricing policies by switching retailers or shifting part of their consumption from peak to off-peak hours. This behavior has a direct effect on the competition between retailers. In the light of this evidence (and considering the increasing penetration of smart meters) this study presents a theoretical framework in which retailers compete on time-of-use (ToU) pricing. In this case, the model is calibrated with Spanish data. Our objective is to determine whether the ToU pricing that emerges from the retail competition makes for greater efficiency than a fixed tariff, and if so, then to what extent. We also examine how efficiency gains are distributed between retailers and consumers. According to the results, the price signal to consumers under ToU pricing may be effective for modifying their consumption patterns and obtaining social welfare gains. As for the intermediate values of consumers’ elasticities, ToU pricing is a win–win for both retailers and consumers. This has substantial implications in terms of cost-efficiency.

Keywords: Demand-side management; Electricity market; Retail pricing policies; Switching costs; Time-of-use pricing; Welfare gains (search for similar items in EconPapers)
JEL-codes: D43 D60 Q41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:121:y:2023:i:c:s0264999323000275

DOI: 10.1016/j.econmod.2023.106215

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