The hidden cost of real time electricity pricing

TY - UNPB

T1 - The hidden cost of real time electricity pricing

AU - Bejan, Ioana

AU - Jensen, Carsten Lynge

AU - Andersen, Laura Mørch

AU - Hansen, Lars Gårn

PY - 2019/5

Y1 - 2019/5

N2 - 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.

AB - 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.

M3 - Working paper

T3 - IFRO Working Paper

BT - The hidden cost of real time electricity pricing

PB - Department of Food and Resource Economics, University of Copenhagen

ER -