Real-time pricing when consumers have saving costs

Evens Salies

No 2012-11, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

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.

Keywords: real-time pricing; energy conservation; price discrimination; demand response programs (search for similar items in EconPapers)
JEL-codes: D1 Q2 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Real-time pricing when consumers have saving costs (2012)
Working Paper: Real-time pricing when consumers have saving costs (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1211

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