Rethinking real-time electricity pricing

Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. This paper evaluates the first program to expose residential consumers to hourly real-time pricing (RTP). I find that enrolled households are statistically significantly price elastic and that consumers responded by conserving energy during peak hours, but remarkably did not increase average consumption during off-peak times. The program increased consumer surplus by $10 per household per year. While this is only one to two percent of electricity costs, it illustrates a potential additional benefit from investment in retail Smart Grid applications, including the advanced electricity meters required to observe a household’s hourly consumption.

► Evaluates the first program to offer residential hourly time-varying pricing. ► Enrolled households are statistically significantly price elastic. ► Consumers conserved during peak hours but did not increase usage off-peak. ► Program increased consumer surplus by $10 per household per year. ► Price information devices called Energy Orbs significantly increased price elasticity.