An Analysis of Time-Based Pricing in Electricity Supply Chains
by Özge İşleğen
Kellogg School of Management, Northwestern University
This paper empirically evaluates the impact of time-based tariffs on electricity supply chains. 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 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.
Özge İşlegen is an Assistant Professor of Operations. After receiving her PhD in Operations, Information and Technology at Stanford Graduate School of Business, she joined Northwestern University, Kellogg School of Management in 2011. Professor İşlegen's research interests include supply chain management, capacity management, environmental sustainability and energy-related operations; specifically, electricity supply chains, and capacity investment strategies for energy-intensive firms under environmental regulations.
Monday, July 24, 2017 at 11:00 a.m. in IE 227