Time-of-use tariffs
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Understanding Time-of-Use Tariffs: Adoption, Impact, and Consumer Behavior
Introduction to Time-of-Use Tariffs
Time-of-Use (TOU) tariffs are a demand-side management strategy designed to encourage consumers to shift their electricity usage to off-peak times by varying the price of electricity throughout the day. This approach aims to make electricity consumption more efficient, reduce peak demand, and lower overall energy costs .
Consumer Adoption of TOU Tariffs
Opt-In vs. Opt-Out Enrollment
Consumer adoption of TOU tariffs varies significantly based on the enrollment method. When consumers are required to opt-in, uptake rates can be as low as 1%, but with efforts to close the intention-action gap, this can increase to 43%. Conversely, if TOU tariffs are implemented on an opt-out basis, adoption rates can approach 100%. This highlights the importance of enrollment strategies in achieving widespread adoption.
Factors Influencing Willingness to Switch
Several factors influence consumers' willingness to switch to TOU tariffs. National surveys often overestimate the actual adoption rates, as the median proportion of consumers willing to switch is five times higher than the actual enrollment rates observed by utilities. Additionally, real-time pricing tariffs, which vary prices freely throughout the day, are generally less popular than static TOU tariffs with fixed peak and off-peak rates.
Socio-Demographic Influences
Socio-demographic factors also play a role in the adoption of TOU tariffs. For instance, high-income groups in London and households with children (not in the high-income group) tend to benefit more from TOU tariffs. Moreover, loss-aversion and ownership of demand-flexible appliances, such as electric vehicles, significantly influence the willingness to switch to TOU tariffs.
Impact of TOU Tariffs on Electricity Demand
Peak Load Shifting and Energy Savings
TOU tariffs are effective in shifting electricity demand from peak to off-peak periods, leading to significant energy savings and reduced need for costly and CO2-intensive redispatch . However, while TOU tariffs can reduce morning peak loads, they may not resolve issues with evening peaks, and in some cases, can even increase peak demand at substations .
Distributional Effects
The financial impact of TOU tariffs varies across different socio-demographic groups and regions. For example, high-income households in London benefit more from TOU tariffs, while other groups may not see the same level of financial advantage. This indicates that TOU tariffs can have varying distributional effects based on household composition and regional differences.
Designing Effective TOU Tariffs
Addressing Price Elasticities and Consumer Behavior
Designing effective TOU tariffs requires considering the price elasticities of demand and consumer behavior. A stochastic optimization approach can help address uncertainties in price elasticities and design tariffs that balance the needs of both consumers and utilities . Properly designed TOU tariffs can create a win-win situation, where producers increase profits and consumers save on electricity costs.
Combining TOU with Other Tariff Structures
Combining TOU tariffs with other structures, such as stepwise power tariffs (SPT), can enhance their effectiveness. A multiobjective model that integrates TOU and SPT can achieve efficient energy savings and peak load shaving, making it a viable strategy for residential energy conservation.
Conclusion
Time-of-Use tariffs offer a promising approach to managing electricity demand and reducing peak loads. However, their success depends on effective enrollment strategies, understanding consumer behavior, and addressing socio-demographic differences. By optimizing tariff designs and combining them with other pricing structures, TOU tariffs can provide significant benefits for both consumers and utilities, contributing to a more efficient and sustainable energy system.
Sources and full results
Most relevant research papers on this topic
Consumer demand for time of use electricity tariffs: A systematized review of the empirical evidence
Distributional effects of Time of Use tariffs based on electricity demand and time use
Consumers’ Willingness to Accept Time-of-Use Tariffs for Shifting Electricity Demand
Time-of-Use Tariff Design Under Uncertainty in Price-Elasticities of Electricity Demand: A Stochastic Optimization Approach
Time-of-use and time-of-export tariffs for home batteries: Effects on low voltage distribution networks
Price-based demand side management: Assessing the impacts of time-of-use tariffs on residential electricity demand and peak shifting in Northern Italy
Electricity time-of-use tariff with consumer behavior consideration
Are consumers willing to switch to smart time of use electricity tariffs? The importance of loss-aversion and electric vehicle ownership
Multiobjective Model of Time-of-Use and Stepwise Power Tariff for Residential Consumers in Regulated Power Markets
Why Have Voluntary Time‐of‐Use Tariffs Fallen Short in the Residential Sector?
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