Arcturus: International Evidence on Dynamic Pricing

Abstract

This paper introduces Arcturus, an international database of dynamic pricing and time-of-use pricing studies. It contains the demand response impacts of 163 pricing treatments that were offered on an experimental or full-scale basis in 34 projects in seven countries located in four continents. The treatments included various types of dynamic pricing rates and simple time-of-use rates, some of which were offered with enabling technologies such as smart thermostats. The demand response impacts of these treatments vary widely, from 0% to more than 50%, and this discrepancy has led some observers to conclude that we still don’t know whether customers respond to dynamic pricing. We find that much of the discrepancy in the results goes away when demand response is expressed as a function of the peak to off-peak price ratio. We then observe that customers respond to rising prices by lowering their peak demand in a fairly consistency fashion across the studies. The response curve is nonlinear and is shaped in the form of an arc: as the price incentive to reduce peak use is raised, customers respond by lowering peak use, but at a decreasing rate. We also find that the use of enabling technologies boosts the amount of demand response. Overall, we find a significant amount of consistency in the experimental results, especially when the results are disaggregated into two categories of rates: time-of-use rates and dynamic pricing rates. This consistency evokes the consistency that was found in earlier analysis of time-of-use pricing studies that was carried out by EPRI in the early 1980s. Our analysis supports the case for the rollout of dynamic pricing wherever advanced metering infrastructure is in place.