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Estimating the impact of time-of-use pricing on Irish electricity demand

Di Cosmo, Valeria and Lyons, Sean and Nolan, Anne (2012): Estimating the impact of time-of-use pricing on Irish electricity demand.

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Abstract

Electricity demand traditionally exhibits a substantial peak during a small number of hours each day. Policymakers are aware of the potential efficiency savings that may be generated from a shift in energy consumption away from peak times. Smart meters, in conjunction with time-of-use (TOU) pricing, can facilitate an improvement in energy efficiency by providing consumers with enhanced information about electricity consumption and costs, and thereby encourage a shift away from consumption during peak hours. In 2009-10, the Irish Commission for Energy Regulation (CER) co-ordinated a randomised controlled trial in the Irish residential electricity market. Smart meters, which replaced the existing mechanical meter readers, were introduced in approximately 5,000 households. Participants were divided into control and treatment groups, with treatment groups exposed to a variety of TOU tariffs and information stimuli (in-home display (IHD) units, monthly billing, etc.). Data was collected over approximately 18 months, with the first half year being used as a control period. This paper analyses the response of Irish households to the introduction of TOU tariffs and information stimuli. We examine how households responded to the different TOU tariffs, at different times of the day (peak, day and night) and in conjunction with different information stimuli. Finally, we examine the variation in our results across households of differing socio-economic status (as proxied by education levels). We find that TOU tariffs and information stimuli have a significant effect in reducing electricity consumption in Ireland, particularly during peak hours. However, while households reduce peak demand significantly after the introduction of TOU tariffs and associated information, there is little incremental response to increasing differentials between peak and off-peak prices.

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