Household Heterogeneity in Valuing Electricity Demand Flexibility Services

Abstract

In this paper, we seek to investigate heterogeneity in households’ valuation of electricity contract attributes that reflect demand-side flexibility in the Swedish residential sector. Using stated preference data generated from a choice experiment, we estimate a mixed logit model in willingness-to-pay space and derive individual-specific conditional mean valuations for contract attributes which include various load controls and distribution of electricity consumption information. We perform a posterior analysis and identify different segments based on the monetary values households attach to the contract attributes. We find that a large proportion of households asks for substantial compensation to accept various load controls and to share their electricity consumption information. However, some households are willing to share their electricity consumption information and ask for relatively lower compensation to allow load controls. We also find that some households that accept load controls at a relatively low compensation require a size-able compensation to share their electricity consumption information, and vice versa. From the perspective of the contract providers, these findings suggest that information-optional contracts can generate more customers than contracts that bundle households’ consumption information with various load controls.

Keywords: Choice Experiment, Demand Flexibility, Direct Load Control, Electricity Contract, Household Heterogeneity

JEL Classification: D12, Q41, Q48, Q51