Abstract
We study consumers’ behavior in an experimental electricity market. Subjects make decisions concerning the quantity of electric energy they want to consume in three different pricing environments. In the baseline framework, they decide under a system of fixed prices, invariant to consumption schedule as well as to network restrictions. The other two environments correspond to dynamic pricing systems combined with incentives that aim at cutting energy consumption in a number of selected situations characterized by high network congestion. In such situations, in the first environment subjects get a bonus if they reduce their peak consumption below a certain level, while in the second one, consumers are sanctioned for consuming in peak times. From a social welfare perspective, our experimental data confirm that a dynamic system for prices is more efficient than a fixed one. Moreover, a dynamic scheme with sanctions, although less preferred by consumers, is more effective than the one with bonuses in order to reduce peak consumption. Dynamic pricing with bonuses reaches a good balance between efficiency and consumer acceptance.
Highlights
We study consumers’ behavior in an experimental electricity market
These two systems are designed in such a way as to allow for a neat comparison between them, given that they are aimed at motivating the same level of energy savings
In dark gray: significantly positive differences at 5%; in clear gray: significantly negative differences at 5%; FP: Fixed Prices; d: Unilateral Hypothesis: PEP (DP): Dynamic Prices; DPB: Dynamic Prices with Bonus; DPS: Dynamic Prices with Sanctions; FP-DP: the test is on the difference between the Fixed Price and the equilibrium price under the Dynamic Pricing scheme, etc.; PEP: Peak Energy Price; VEP: Valley Energy Price; N: Normal period; SR: period with Supply Restrictions; HD: High demand period
Summary
A relevant consequence of the increasing importance of environmental sustainability and the difficulty in modulating energy supply is that solutions are frequently searched from the demand side. In Treatment 1, the dynamic pricing scheme is combined with a Peak Time Rebate, whereby in some of the congested periods (not normal), buyers receive a bonus for each kWh they save with respect to a certain individual reference level of consumption. Before the beginning of the experimental session, subjects were randomly assigned the role of consumers highly dependent or less dependent on electricity (in a proportion of 50-50 in each market), and received a series of instructions describing the general features of the experiment and the characteristics of the benchmark environment played first They were asked not to communicate with the other players, given that their gains were related to the others’ behavior. 11 Definitions of the two dynamic pricing schemes (with bonuses and with sanctions) were presented in the questionnaire itself (see Instructions in the Appendix)
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