Household electricity consumers’ incentive to choose dynamic pricing under different taxation schemes

Electricity consumers' incentive to choose dynamic pricing

Jonas Katz*, Lena Kitzing, Sascha Thorsten Schröder, Frits Møller Andersen, Poul Erik Morthorst, Morten Stryg

*Corresponding author for this work

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    Abstract

    Dynamic pricing of retail electricity, as opposed to the widely applied average pricing, has often been proposed to enhance economic efficiency through demand response. The development of variable production from renewable energies and expectations about the installation of heat pumps and electric vehicles has now reinforced interest in flexible demand and dynamic pricing. With a roll-out of smart metering one important technical hurdle is going to be cleared, and dynamic retail pricing may soon become an eligible option for many households. We quantify the potential incentives to adopt new pricing schemes using exemplary Danish data. Until now, limited activity of household consumers on retail markets indicates that switching supplier or contract is perceived costly. We apply the concept of switching costs to explain this hesitant behavior, and use it to estimate a threshold level based on recent observations in the Danish market. We calculate potential savings from dynamic pricing and show how the choice of electricity taxation technique may hamper or enhance potential benefits. In the light of switching costs, our results suggest that the combination of smart meter roll-out and dynamic pricing offerings might be insufficient to convince the majority of households to switch contracts and become active in response to prices, unless they hold a substantial flexibility potential. Dynamic taxation, even if applied to parts of the levies, could contribute significantly to inducing flexible consumption.
    Original languageEnglish
    Article numbere270
    JournalWiley Interdisciplinary Reviews: Energy and Environment
    Volume7
    Issue number1
    ISSN2041-8396
    DOIs
    Publication statusPublished - 2018

    Cite this

    @article{590b48e3156f45c3a4b09e445f11bdc1,
    title = "Household electricity consumers’ incentive to choose dynamic pricing under different taxation schemes: Electricity consumers' incentive to choose dynamic pricing",
    abstract = "Dynamic pricing of retail electricity, as opposed to the widely applied average pricing, has often been proposed to enhance economic efficiency through demand response. The development of variable production from renewable energies and expectations about the installation of heat pumps and electric vehicles has now reinforced interest in flexible demand and dynamic pricing. With a roll-out of smart metering one important technical hurdle is going to be cleared, and dynamic retail pricing may soon become an eligible option for many households. We quantify the potential incentives to adopt new pricing schemes using exemplary Danish data. Until now, limited activity of household consumers on retail markets indicates that switching supplier or contract is perceived costly. We apply the concept of switching costs to explain this hesitant behavior, and use it to estimate a threshold level based on recent observations in the Danish market. We calculate potential savings from dynamic pricing and show how the choice of electricity taxation technique may hamper or enhance potential benefits. In the light of switching costs, our results suggest that the combination of smart meter roll-out and dynamic pricing offerings might be insufficient to convince the majority of households to switch contracts and become active in response to prices, unless they hold a substantial flexibility potential. Dynamic taxation, even if applied to parts of the levies, could contribute significantly to inducing flexible consumption.",
    author = "Jonas Katz and Lena Kitzing and Schr{\"o}der, {Sascha Thorsten} and {M{\o}ller Andersen}, Frits and Morthorst, {Poul Erik} and Morten Stryg",
    year = "2018",
    doi = "10.1002/wene.270",
    language = "English",
    volume = "7",
    journal = "Wiley Interdisciplinary Reviews: Energy and Environment",
    issn = "2041-8396",
    publisher = "JohnWiley & Sons, Inc.",
    number = "1",

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    TY - JOUR

    T1 - Household electricity consumers’ incentive to choose dynamic pricing under different taxation schemes

    T2 - Electricity consumers' incentive to choose dynamic pricing

    AU - Katz, Jonas

    AU - Kitzing, Lena

    AU - Schröder, Sascha Thorsten

    AU - Møller Andersen, Frits

    AU - Morthorst, Poul Erik

    AU - Stryg, Morten

    PY - 2018

    Y1 - 2018

    N2 - Dynamic pricing of retail electricity, as opposed to the widely applied average pricing, has often been proposed to enhance economic efficiency through demand response. The development of variable production from renewable energies and expectations about the installation of heat pumps and electric vehicles has now reinforced interest in flexible demand and dynamic pricing. With a roll-out of smart metering one important technical hurdle is going to be cleared, and dynamic retail pricing may soon become an eligible option for many households. We quantify the potential incentives to adopt new pricing schemes using exemplary Danish data. Until now, limited activity of household consumers on retail markets indicates that switching supplier or contract is perceived costly. We apply the concept of switching costs to explain this hesitant behavior, and use it to estimate a threshold level based on recent observations in the Danish market. We calculate potential savings from dynamic pricing and show how the choice of electricity taxation technique may hamper or enhance potential benefits. In the light of switching costs, our results suggest that the combination of smart meter roll-out and dynamic pricing offerings might be insufficient to convince the majority of households to switch contracts and become active in response to prices, unless they hold a substantial flexibility potential. Dynamic taxation, even if applied to parts of the levies, could contribute significantly to inducing flexible consumption.

    AB - Dynamic pricing of retail electricity, as opposed to the widely applied average pricing, has often been proposed to enhance economic efficiency through demand response. The development of variable production from renewable energies and expectations about the installation of heat pumps and electric vehicles has now reinforced interest in flexible demand and dynamic pricing. With a roll-out of smart metering one important technical hurdle is going to be cleared, and dynamic retail pricing may soon become an eligible option for many households. We quantify the potential incentives to adopt new pricing schemes using exemplary Danish data. Until now, limited activity of household consumers on retail markets indicates that switching supplier or contract is perceived costly. We apply the concept of switching costs to explain this hesitant behavior, and use it to estimate a threshold level based on recent observations in the Danish market. We calculate potential savings from dynamic pricing and show how the choice of electricity taxation technique may hamper or enhance potential benefits. In the light of switching costs, our results suggest that the combination of smart meter roll-out and dynamic pricing offerings might be insufficient to convince the majority of households to switch contracts and become active in response to prices, unless they hold a substantial flexibility potential. Dynamic taxation, even if applied to parts of the levies, could contribute significantly to inducing flexible consumption.

    U2 - 10.1002/wene.270

    DO - 10.1002/wene.270

    M3 - Journal article

    VL - 7

    JO - Wiley Interdisciplinary Reviews: Energy and Environment

    JF - Wiley Interdisciplinary Reviews: Energy and Environment

    SN - 2041-8396

    IS - 1

    M1 - e270

    ER -