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Research article - Peer-reviewed, 2021

Time-varying pricing may increase total electricity consumption: Evidence from Costa Rica

Capitan, Tabare; Alpizar, Francisco; Madrigal-Ballestero, Roger; Pattanayak, Subhrendu K.

Abstract

We study the implementation of a time-varying pricing (TVP) program by a major electricity utility in Costa Rica. Because of particular features of the data, we use recently developed understanding of the two-way fixed effects differences-in-differences estimator along with event-study specifications to interpret our results. Similar to previous research, we find that the program reduces consumption during peak-hours. However, in contrast with previous research, we find that the program increases total consumption. With a stylized economic model, we show how these seemingly conflicted results may not be at odds. The key element of the model is that previous research used data from rich countries, in which the use of heating , cooling devices drives electricity consumption, but we use data from a tropical middle-income country, where very few households have heating or cooling devices. Since there is not much room for technological changes (which might reduce consumption at all times), behavioral changes to reduce consumption during peak hours are not enough to offset the increased consumption during off-peak hours (when electricity is cheaper). Our results serve as a cautionary piece of evidence for policy makers interested in reducing consumption during peak hours-the goal can potentially be achieved with TVP, but the cost is increased total consumption (c) 2021 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).

Keywords

Dynamic pricing; Energy; Behavioral adjustments; LMICs

Published in

Resource and Energy Economics
2021, volume: 66, article number: 101264
Publisher: ELSEVIER

Authors' information

Capitán Jimenéz, Tabaré
Swedish University of Agricultural Sciences, Department of Economics
Alpizar, Francisco
Wageningen University and Research
Madrigal-Ballestero, Róger
CATIE - Centro Agronomico Tropical de Investigacion y Ensenanza
Pattanayak, Subhrendu K.
Duke University

Sustainable Development Goals

SDG7 Affordable and clean energy
SDG17 Strengthen the means of implementation and revitalize the global partnership for sustainable development

UKÄ Subject classification

Economics

Publication Identifiers

DOI: https://doi.org/10.1016/j.reseneeco.2021.101264

URI (permanent link to this page)

https://res.slu.se/id/publ/114157