| 7, 2003 | Regulating Retail Electricity Prices: A Review of Theoretical and Empirical Issues |
| authors |
Graziano
ABRATE |
| At present, demand is almost completely unresponsive to price in most power markets, since consumers usually face fixed retail electricity prices, which do not reflect the time-varying marginal wholesale cost of production. This is a source of inefficiency, in particular in a deregulated power market, where utilities are exposed to a competitive wholesale market. This work describes what is meant by demand-side participation programs and the different ways they can be implemented to promote demand responsiveness. The objective is to highlight their effectiveness and their effects on consumers' welfare. The theoretical advantages of dynamic pricing are discussed together with the technological, cultural and regulatory barriers that they face in practice. Benefits from such programs depend crucially on the possibility to shift consumption across different time-periods. Different empirical studies have provided estimates of this substitutability, and here I present a survey of results and techniques. There is agreement over the customer's ability to respond to price signals, but the extent of such a response varies widely across users. This can raise equity issues when implementing time-varying retail prices, that must be assessed together with the expected benefits in terms of efficiency brought by an increased demand responsiveness. |
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01/25/2004 19:38