Abstract

In this study, using hourly data from a representative sample of Swedish households on standard tariffs, we investigate the welfare and emission implications of moving to a mandatory dynamic pricing scheme. We allow demand during different hours of a day to affect utility differently, and account for the derived nature of electricity demand by explicitly accounting for the services (end-use demands) that drive hourly electricity demand. We use the flexible Exact Affine Stone Index (EASI) demand system, which accommodates both observed and unobserved heterogeneity in preferences, to understand changes in load consequent to hourly retail pricing. Our findings suggest that, following hourly retail pricing, changes in load patterns across hours are relatively small: total load changes by less than one percent. There are correspondingly small reductions in welfare and carbon emissions, of less than 0.2 percent and 0.47 percent, respectively. Overall, in the context of a decentralized, competitive retail electricity market-setting, our results suggest that the benefits to ensuring that the retail price of electricity reflects the hourly marginal cost is small, at least in the short run.

Keywords

Appliance holdings; Electricity; Energy demand; Demand system; Dynamic pricing

Published in

Energy Journal
2022, Volume: 43, number: 1, pages: 161-+
Publisher: INT ASSOC ENERGY ECONOMICS

SLU Authors

• Krishnamurthy, Chandra

  • Department of Forest Economics, Swedish University of Agricultural Sciences
    

Sustainable Development Goals

Ensure access to affordable, reliable, sustainable and modern energy for all


UKÄ Subject classification

Economics


Publication identifier

DOI: https://doi.org/10.5547/01956574.43.1.akar

Permanent link to this page (URI)

https://res.slu.se/id/publ/115193