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The Discovery of Price Responsiveness – A Survey of Experiments Involving Dynamic Pricing of Electricity

13 Pages Posted: 14 Mar 2012 Last revised: 23 Apr 2012

Ahmad Faruqui

The Brattle Group

Jenny Palmer

The Brattle Group

Date Written: March 12, 2012

Abstract

This paper surveys the results from 126 pricing experiments with dynamic pricing and time-of-use pricing of electricity. These experiments have been carried out across three continents at various times during the past decade. Data from 74 of these experiments are sufficiently complete to allow us to identify the relationship between the strength of the peak to off-peak price ratio and the associated reduction in peak demand or demand response. An “arc of price responsiveness” emerges from our analysis, showing that the amount of demand response rises with the price ratio but at a decreasing rate. We also find that about half of the variation in demand response can be explained by variations in the price ratio. This is a remarkable result, since the experiments vary in many other respects – climate, time period, the length of the peak period, the history of pricing innovation in each area, and the manner in which the dynamic pricing designs were marketed to customers. We also find that enabling technologies such as in-home displays, energy orbs and programmable and communicating thermostats boost the amount of demand response. The results of the paper support the case for widespread rollout of dynamic pricing and time-of-use pricing.

Keywords: Dynamic Pricing, Time-of-Use, Electricity

Suggested Citation

Faruqui, Ahmad and Palmer, Jenny, The Discovery of Price Responsiveness – A Survey of Experiments Involving Dynamic Pricing of Electricity (March 12, 2012). Available at SSRN: https://ssrn.com/abstract=2020587 or http://dx.doi.org/10.2139/ssrn.2020587

Ahmad Faruqui (Contact Author)

The Brattle Group ( email )

Suite 2800
201 Mission Street
San Francisco, CA 94105
United States

Jenny Palmer

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

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