Lessons from Residential Electricity Demand Analysis on the Time of Use Pricing Experiment in South Korea

Abstract

This study analyzes a large-scale Time of Use (TOU) pricing experiment, the first attempt in South Korea, where single standard rates under increasing block pricing are applied to residential customers. The experiment was conducted for 2033 households living in 16 apartment complexes, where the control group was subject to the current standard rates, while the two treatment groups had different rate schedules under TOU pricing. Using the data that included both the pre-experimental period (September 2018-September 2019) and post-experimental period (October 2019-August 2020), we built on a two-level electricity demand model to analyze (1) whether TOU pricing effectively transfers the peak demand of residential customers within a day, and (2) the changes in daily electricity consumption. We found that households reduced peak demand in response to relatively high prices. However, unlike the control group, whose price responsiveness did not change over the sample period, that of treatment groups decreased in the post-experimental period, thus resulting in increased intermediate consumption. The reason is the reduced price index resulted from the effective load transfer of households, combined with the low intermediate price that does not reduce consumption. The price schedule under TOU pricing should be reexamined for social welfare.

Keywords: TOU pricing, price elasticity, electricity demand analysis, residential electricity.