Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 12-2020: Is Real-time Pricing Smart for Consumers?

Anette Boom () and Sebastian Schwenen ()
Additional contact information
Anette Boom: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Sebastian Schwenen: Technical University of Munich, School of Management, and DIW Berlin (Germany)

Abstract: We examine the effects of real-time pricing on welfare and consumer surplus in electricity markets. We model consumers on real-time pricing who purchase electricity on the wholesale market. A second group of consumers contracts with retailers and pays time-invariant retail prices. Electricity generating firms compete in supply functions. Increasing the number of consumers on real-time pricing increases welfare and consumer surplus of both types of consumers. Yet, risk averse consumers on traditional time-invariant retail prices are always better off. Collectively, our results point to a public good nature of demand response in power markets when consumers are risk-averse.

Keywords: Electricity; Real-time pricing; Market power; Efficiency

JEL-codes: D42; D43; D44; L11; L12; L13

26 pages, July 1, 2020

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