Towards Flexible Energy Demand – Preferences for Dynamic Contracts, Services and Emissions Reductions

Abstract

Households’ preferences for attributes of flexible energy demand are not well understood. This paper evaluates Finnish households’ acceptance of hypothetical contracts and services aimed at increasing demand side flexibility. We conduct a Choice Experiment to analyze households’ willingness to offer flexibility through timing their electricity usage and heating; their interest in dynamic pricing contracts such as real-time pricing, two-rate tariffs, or power-based tariffs; and how emissions reductions affect their choices. The results indicate that households’ sensitivity to restrictions in electricity usage is much stronger than their sensitivity to restrictions in heating. Households also require considerable compensation to choose real-time pricing over fixed fees. The findings suggest that room may exist in the market for new dynamic electricity distribution contracts, such as power-based tariffs. Furthermore, other value-creating elements besides monetary compensation could incentivize households to offer demand side flexibility because they value reductions in CO2 emissions at the power system level.

Keywords: flexibility, demand response, demand side management, choice experiment, consumer, power-based tariff, real-time price, direct load control

JEL Classification: D12, Q40, Q48, Q51