Price Elasticity of Demand for Electricity: A Primer and Synthesis
The results of recent real-time pricing (RTP) and critical peak pricing (CPP) pilots demonstrate resoundingly that consumers can and will adjust electricity usage in response to price changes. Nonetheless, dynamic pricing plans are still novelties, in part because policy makers and pricing plan designers are equal y skeptical of the impact of large-scale implementation. There is no consensus on the degree to which consumers will respond to price changes and as a result no concurrence on which pricing plan or plans should be adopted.
This white paper synthesizes recent and relevant in situ studies to define and quantify the character of how consumer response to electricity price changes. It begins with a primer that provides a robust, graphic-aided, characterization of how price influences demand, and the role of other, compounding factors. Several analytical studies are used to demonstrate these concepts quantitatively, and portray the wide range of available estimates of price elasticity. A synthesis of these estimates demonstrates that there are several factors that determine consumers’
ability to respond, and rationalizes and explains the wide range of estimates of the price elasticity of electricity demand.
A compel ing conclusion is that a wide variety of consumers exhibit price response when provided an opportunity to do so. The relative tight bunching of elasticity estimates from a variety of dynamic pricing pilots, involving different customer segments under different market circumstances, suggests that price response impacts can be estimated quite confidently and accurately. This should embolden those that are already inclined to launch new pricing initiatives, and serve to motivate those that have remained skeptical to take another hard look at the benefits of dynamic pricing of electricity.
The results of recent Real-Time Pricing (RTP) and Critical Peak Pricing (CPP)...