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Effects of time-of-use pricing for residential customers and wholesale market consequences in South Korea

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  • Jang, Heesun
  • Moon, Seongman
  • Kim, Jihyo

Abstract

Using a large-scale pilot test on time-of-use (TOU) pricing for residential customers, this study analyzes the effects of TOU pricing on the load patterns of residential customers and on producer surplus in South Korea. We estimate the difference in the electricity demand functions of residential customers across peak, intermediate, and off-peak periods before and after TOU pricing. In addition, we assess the supply curve in the wholesale electricity market and calculate the changes in electricity purchase costs by integrating the supply curve over the range of consumption changes across the periods. This study simulates the effects of TOU pricing on producer surplus that would be obtained if all residential customers in South Korea switch from increasing block pricing to TOU pricing. Our results show that TOU pricing can be an effective measure for load transfer and simultaneously increase producer surplus. We find that although the revenue of electric utility generally decreases, the cost savings are greater and thus producer surplus increases. The results can be a valuable reference for the South Korean government regarding the nationwide expansion of TOU for residential electricity in the future.

Suggested Citation

  • Jang, Heesun & Moon, Seongman & Kim, Jihyo, 2024. "Effects of time-of-use pricing for residential customers and wholesale market consequences in South Korea," Energy Economics, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:eneeco:v:134:y:2024:i:c:s0140988324002652
    DOI: 10.1016/j.eneco.2024.107557
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    More about this item

    Keywords

    Time-of-use pricing; Residential electricity; Wholesale market; Load transfer; Producer surplus;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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