A Study on How the Electricity Market as a Whole and Consumers in Particular Could Benefit if More Consumers were to buy Electricity on Hourly Metering

Abstract: When consumers are able to buy electricity on an hourly instead of monthly basis, the demand side flexibility is likely to increase. One way to lower the cost of electricity is to move consumption from peak price hours to low price hours, a sort of inter-temporal substitution were the net energy use is unaffected. By simulating one example of inter-temporal substitution in the Swedish spot market during 2008-2010, we show that the general welfare effects are small in terms of a more efficient energy production, but that the transfer of resources from producers to consumers is large. Whether the welfare effect is positive or negative is highly dependent on future electricity prices, the introduction of renewable energy resources, and the price of the new technology needed for the demand side regulation. If 2010 is used as a reference case, the results from our specific case concludes that a natural investment equilibrium is reached when approximately 150 000 households invest in the proposed demand side regulation technology. Using the same reference year, we see that if 70 000 households participates the Net Present Welfare benefit is around 10% of the necessary investment cost; to be compared with the transfer of benefits from producers to consumers which estimates roughly 2100% of the necessary investment cost. We argue that this imbalance in potential welfare benefits between producers and consumers might slow down the process of increasing the general welfare.