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The hidden cost of real time electricity pricing

Ioana Bejan (), Carsten Jensen (), Laura M. Andersen () and Lars Hansen ()
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Ioana Bejan: Department of Food and Resource Economics, University of Copenhagen
Laura M. Andersen: Department of Food and Resource Economics, University of Copenhagen

No 2019/03, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

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.

Keywords: real time electricity pricing; time of use electricity pricing; field experiment; household cost of reacting (search for similar items in EconPapers)
JEL-codes: C93 L51 L94 Q41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-05
New Economics Papers: this item is included in nep-bec, nep-ene, nep-exp, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:foi:wpaper:2019_03

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