Working Paper: NBER ID: w30560
Authors: Tim Schittekatte; Dharik S. Mallapragada; Paul L. Joskow; Richard Schmalensee
Abstract: Currently, most U.S. electricity consumers pay a constant price per kWh consumed that accounts for most of their bill. Ongoing developments in the power system increase efficiency gains that can be made from exposing consumers to widely varying wholesale spot prices. Pure spot pricing is not popular; consumers (and politicians) value price predictability and bill stability. We focus on second-best alternatives: time-of-use (TOU) and critical peak pricing (CPP). We introduce alternative assessment criteria tailored to a context with increasing intraday shiftable loads. Using historical data from CAISO, ERCOT and ISO-NE, we find that out-of-sample daily Spearman rank correlations between TOU rates and spot prices can be relatively high (averaging 0.7-0.8), and simulations confirm that TOU rates can reasonably replicate efficient load-shifting incentives (up to 60-70% of the potential). Our analysis suggests that TOU rates, especially when complemented with CPP, can be considerably more socially valuable than previously estimated.
Keywords: electricity pricing; time-of-use rates; critical peak pricing; demand-side management
JEL Codes: L94; L97; Q41; Q42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| TOU rates (L97) | consumer load-shifting behavior (D16) |
| TOU rates (L97) | market efficiency (G14) |
| CPP (C88) | consumer load-shifting behavior (D16) |
| TOU rates + CPP (L97) | social value (D46) |
| TOU rates (L97) | wholesale spot pricing (D49) |