The price is not right! Energy demand, Time of Use tariffs, values and social practices

Panel: 1. Dynamics of consumption: less is more?

This is a peer-reviewed paper.

Authors:
Jose Luis Ramirez-Mendiola, University of Reading, United Kingdom
Jacopo Torriti, School of Built Environment, University of Reading, United Kingdom

Abstract

Several governments are opting to move from flat electricity tariffs to Time of Use pricing in an effort to curb peak electricity demand. However, despite the fact that numerous trial studies looking to quantify the effectiveness of pricing schemes have been carried out, these have produced mixed results, and in most cases, the observed temporal shifts in demand in response to the introduction of time-varying pricing are marginal at best. If changes in the timing of energy demand should be of substantial magnitude, marginal behavioural shifts in electricity consumption will not be sufficient. This prompts conceptual efforts to research what constitutes an (in)effective price-driven demand management intervention, and what their implementation may mean for energy demand.

Most failures in price-driven interventions have been interpreted by energy economists in terms of setting the wrong price, which for time-varying tariffs translates into inadequate price ratios between peak and off-peak periods. This view is rooted in principles of economic rational choice theories that assume people will always respond to changes in the price of goods or services in a rational, predictable manner. However, this fails to consider the fact that price is only one of many factors at play when it comes to making decisions that will result in demand for energy.

This paper suggests that more radical reductions in demand for energy and associated carbon emissions can be achieved through approaches that aim to find a better alignment of time-varying pricing and the (value of) social practices which constitute everyday life. The paper concludes by suggesting ways to integrate concepts explaining ToU pricing effects and the timing of electricity demand with methodologies which disaggregate price elasticity, and offer alternatives to the estimation of market and non-market values of practices and time.