The Role of Advance Notice in Shaping Industrial Response to Time-Varying Electricity Prices

Daiya Isogawa, Hiroshi Ohashi and Tokunari Anai
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Daiya Isogawa: Graduate School of Economics, Osaka Metropolitan University
Hiroshi Ohashi: Faculty of Economics, The University of Tokyo
Tokunari Anai: Tokyo Electric Power Company Holdings, Incorporated,

No CIRJE-F-1226, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Time-varying electricity prices is pivotal for efficient electricity demand management, particularly when supply is inflexible. Utilities often issue advance notices during peak demand periods to alert users of imminent price hikes. However, the extent to which such notices influence demand response (DR) effectiveness has been understudied, either theoretically or empirically. This paper investigates the impact of advance notifications periods on industrial responses to fluctuating electricity prices. It posits that for users with a lower rate of inter-temporal elasticity of substitution, DR efficacy wanes as advanced warnings of peak prices lead to more homogenized consumption patterns over time. Empirical evidence from an industrial DR program in Japan substantiates this theory. Furthermore, the paper explores the economic rationale behind utilities’ decisions to issue advance notices, despite their potential to lessen DR impact.

Pages: 44 pages
Date: 2024-03
New Economics Papers: this item is included in nep-ene
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