An Analysis of Time-Based Pricing in Electricity Supply Chains

This paper empirically evaluates the impact of time-based tariffs on the electricity supply chain. We investigate the residential electricity demand and supply equilibrium, using data from a field experiment conducted by the Ireland Commission for Energy Regulation: We first estimate individual households’ demand as a function of retail electricity prices. Then, we characterize the optimal retail prices under the flat rate, time-of-use (TOU) and real-time pricing (RTP) schemes for the social planner, the monopolist retailer and in a perfectly competitive retail electricity market. We find that time-based pricing schemes can be effective in reducing the peak load. Specifically, a simple TOU tariff with predetermined rates for different hours of the day can reduce the peak load as much as RTP. However, time-based tariffs do not reduce consumers’ electricity bills or total consumption significantly. Finally, time-based prices only slightly increase the carbon dioxide emissions in Ireland. Nonetheless, the environmental impact of these tariffs can be significant in other electricity markets with different generation mix and dispatch decisions.