Assessing the Benefits from Electricity Real-Time Pricing for Heterogeneous Consumer Demand Groups

University essay from Handelshögskolan i Stockholm/Institutionen för nationalekonomi

Abstract: Real-time pricing (RTP) of electricity avoids the market inefficiencies caused by flat-rate pricing and can help to integrate a greater share of renewable energies. However, RTP for household consumers has met fierce opposition, often on the grounds that it will have adverse redistributional effects. Modelling the British electricity market under RTP while accounting for the merit-order effect of renewable energies, we use hourly data on the electricity consumption by households from 17 different socio-economic groups to estimate the short-run impact of a mandatory switch to RTP on the welfare of these groups. For households from all groups we find only negligible changes in welfare. Moreover, we find little differences in the welfare impact of RTP across socio-economic groups, contrasting with the commonly expressed worry that RTP will negatively affect already disadvantaged consumers, thereby exacerbating energy poverty.

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