Preferences for curtailable electricity contracts: Can curtailment benefit consumers and the electricity system?

Abstract

Growth in energy demand together with the increased volatility from growing intermittent electricity production requires new sources of demand flexibility to maintain power system balance. End-use specific curtailable electricity contracts are one incentive-based Demand Response (DR) instrument that could help increase flexibility. This paper employs a choice experiment on a representative sample of electricity consumers in Ireland to elicit their preferences for these types of contracts on household appliances during peak load hours. A welfare analysis is then conducted to determine the compensating variation for different contract scenarios and examine the potential savings associated with a selection of scenarios from the perspective of the power system. The results suggest that there could be potential for flexibility from curtailable electricity contracts. On average, consumers are found to be mostly indifferent to curtailable contracts compared to their status quo contract. More specifically, the type of household appliance in these contracts has the most influence on preferences, while contracts at low event frequencies that include advance notice and an opt out are most preferred. In general, the net benefits to the system in curtailing the tumble dryer or dishwasher at low monthly frequencies are found to be positive, while net benefits are estimated to be negative for the other appliances.