Serving two masters – How dual price signals can undermine demand flexibility

Britt Stikvoort, Fouad El Gohary, Anders Nilsson and Cajsa Bartusch

Energy Policy, 2024, vol. 185, issue C

Abstract: Demand-side flexibility is often encouraged via demand response programs, where users are incentivized to adjust their electricity consumption based on price signals in tariffs. The design and implementation of these signals are vital, as they link conditions of the energy system with user behaviour. As a result of energy system separation into stages of generation, many users are required to simultaneously respond to two price signals. While existing research has mainly examined responses to a single signal, this study highlights the complexities when users must react to two signals simultaneously. It presents a case study using two distinct price signals: real-time pricing (RTP) and a demand charge, analysing the implications such dual price signals could have on users. The study reveals the empirical incompatibility of these signals, leading to conflicting user goals. Such interference complicates decision-making for demand flexibility, potentially eroding user trust in retailers and system operators. The study ends with proposing an alternative tariff, resolving the dual price situation, which facilitates user comprehension and decision-making, and thus enhances the potential for demand flexibility.

Keywords: Demand charge; Real-time pricing; Price signals; Price signal interference; Demand-side flexibility; Mixed method approach (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:185:y:2024:i:c:s0301421523005037

DOI: 10.1016/j.enpol.2023.113918

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