IDEAS home Printed from https://ideas.repec.org/a/cup/bpubpo/v1y2017i02p219-251_00.html
   My bibliography  Save this article

Behavioral considerations for effective time-varying electricity prices

Author

Listed:
  • SCHNEIDER, IAN
  • SUNSTEIN, CASS R.

Abstract

Wholesale prices for electricity vary significantly due to high fluctuations and low elasticity of short-run demand. End-use customers have typically paid flat retail rates for their electricity consumption, and time-varying prices (TVPs) have been proposed to help reduce peak consumption and lower the overall cost of servicing demand. Unfortunately, the general practice is an opt-in system: a default rule in favor of TVPs would be far better. A behaviorally informed analysis also shows that when transaction costs and decision biases are taken into account, the most cost-reflective policies are not necessarily the most efficient. On reasonable assumptions, real-time prices can result in less peak conservation of manually controlled devices than time-of-use or critical-peak prices. For that reason, the trade-offs between engaging automated and manually controlled loads must be carefully considered in time-varying rate design. The rate type and accompanying program details should be designed with the behavioral biases of consumers in mind, while minimizing price distortions for automated devices.

Suggested Citation

  • Schneider, Ian & Sunstein, Cass R., 2017. "Behavioral considerations for effective time-varying electricity prices," Behavioural Public Policy, Cambridge University Press, vol. 1(2), pages 219-251, November.
  • Handle: RePEc:cup:bpubpo:v:1:y:2017:i:02:p:219-251_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S2398063X17000021/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jacobsen, Grant D. & Stewart, James I., 2022. "How do consumers respond to price complexity? Experimental evidence from the power sector," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    2. vom Scheidt, Frederik & Staudt, Philipp, 2024. "A data-driven Recommendation Tool for Sustainable Utility Service Bundles," Applied Energy, Elsevier, vol. 353(PB).
    3. Julien Lancelot Michellod & Declan Kuch & Christian Winzer & Martin K. Patel & Selin Yilmaz, 2022. "Building Social License for Automated Demand-Side Management—Case Study Research in the Swiss Residential Sector," Energies, MDPI, vol. 15(20), pages 1-25, October.
    4. Correia-da-Silva, João & Soares, Isabel & Fernández, Raquel, 2020. "Impact of dynamic pricing on investment in renewables," Energy, Elsevier, vol. 202(C).
    5. Ambec, Stefan & Crampes, Claude, 2021. "Real-time electricity pricing to balance green energy intermittency," Energy Economics, Elsevier, vol. 94(C).
    6. Burns, Kelly & Mountain, Bruce, 2021. "Do households respond to Time-Of-Use tariffs? Evidence from Australia," Energy Economics, Elsevier, vol. 95(C).
    7. Rasool Bukhsh & Nadeem Javaid & Zahoor Ali Khan & Farruh Ishmanov & Muhammad Khalil Afzal & Zahid Wadud, 2018. "Towards Fast Response, Reduced Processing and Balanced Load in Fog-Based Data-Driven Smart Grid," Energies, MDPI, vol. 11(12), pages 1-21, November.
    8. Atasoy, Ayse Tugba & Harmsen-van Hout, Marjolein & Madlener, Reinhard, 2018. "Strategic Demand Response to Dynamic Pricing: A Lab Experiment for the Electricity Market," FCN Working Papers 5/2018, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Jan 2020.
    9. Arlt, Marie-Louise & Chassin, David & Rivetta, Claudio & Sweeney, James, 2024. "Impact of real-time pricing and residential load automation on distribution systems," Energy Policy, Elsevier, vol. 184(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:bpubpo:v:1:y:2017:i:02:p:219-251_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/bpp .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.