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  5. The Energy Transition, Electricity Prices, and Consumer Behavior
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The Energy Transition, Electricity Prices, and Consumer Behavior

Paper Session

Friday, Jan. 3, 2025 8:00 AM - 10:00 AM (PST)

Parc 55
Hosted By: Association of Environmental and Resource Economists
  • Chair: Karen Palmer, Resources for the Future

Unintended Consequences of Time-Of-Use Rates: EV Charging and Distribution Network Constraints

Megan Bailey
,
University of Calgary
David Brown
,
University of Alberta
Erica Myers
,
University of Calgary
Blake Shaffer
,
University of Calgary
Frank Wolak
,
Stanford University

Abstract

We implement a field experiment to assess the effect of time-of-use (TOU) pricing and managed charging
to shift the timing of electric vehicle (EV) charging and reduce strain on the electric distribution grid. We randomly assign EVs into 10-vehicle “virtual transformer” groups that face randomized, daily
transformer constraints. We find that while TOU rates do deliver, as intended, a shift in electricity
consumption to off-peak periods—a useful outcome for the energy system—they also result in the
unintentional coordination of electricity consumption for EV charging in the cheaper evening TOU
off-peak hours. This unintended coordination aspect of TOU pricing increases the frequency of virtual
distribution transformer constraint violations compared to our control group. In contrast, centrally
managed charging of EVs reduces the frequency of virtual transformer constraint violations. Further, we
find that EV owners rarely opted out of managed charging, only overriding managed charging in
approximately 1% of charge sessions. These results highlight the potential for automation to facilitate
electrification of the transportation sector with lower distribution grid upgrade costs than expected.

How Does Declining U.S. Electricity Demand Affect Electricity Prices? Implications for the Distributional Effects of Energy Efficiency, Rooftop Solar and Other Demand Side Policies

Jing Liang
,
University of Maryland-College Park
Joshua Linn
,
University of Maryland-College Park
Lucy Qiu
,
University of Maryland-College Park

Abstract

In the United States, local, state, and federal policies promote energy efficiency and rooftop solar
photovoltaic (PV) systems, aiming to decrease electricity demand and reduce stress on the electricity grid
as well as local air pollution and greenhouse gas emissions. While advocates proclaim these policies to be
highly cost effective, opponents caution against a death spiral. Electricity transmission and distribution
services constitute natural monopolies, and their average costs decrease with the quantity of electricity
supplied. By reducing electricity demand, rooftop solar or energy efficiency policies increase average
costs of supplying transmission and distribution, which could increase retail electricity prices. Higher
prices would further stimulate PV and energy efficiency adoption, reducing electricity demand and
potentially driving retailers out of business. While claims of death spirals may be overblown, invoking
them does highlight the real possibility that demand-side climate policies may be regressive. High-income
households tend to benefit directly from PV subsidies and efficiency standards and programs. Because the
income elasticity of consumption is less than one, higher electricity prices disproportionately
disadvantage lower-income households. Consequently, these policies may be regressive, even those that
target benefits to low-income households. This paper evaluates whether PV subsidies, home appliance
energy efficiency standards, and other energy efficiency policies have increased electricity prices and
household bills. We quantify the distributional implications of those price changes across income and
other demographic groups. We combine econometric analysis with a more structural approach based on
an electricity generator dispatch model to estimate the short run elasticity of electricity supply to the price of electricity. Based on these estimates, we simulate demand reduction caused by subsidizing solar PV or energy efficiency and quantify the welfare changes across income and other demographic groups caused
by the resulting changes in electricity prices.

Variable Pricing Accelerates Decarbonization of the Electricity Sector: Implications from a High-Resolution Model of the Continental United States

Ethan Hartley
,
University of Hawaii-Manoa
Michael Roberts
,
University of Hawaii-Manoa

Abstract

Real-time pricing (RTP) sets the price of electricity equal to its marginal cost over a short period, typically one hour. Alternatively, time-of-use pricing (TOU) sets prices by time of day, ideally varying according to the typical marginal cost in each block. Since network monopolies govern electricity at the retail level, prices are regulated and rarely time-varying. Usually, retail prices far exceed marginal costs to help recover capital and operations costs. Sometimes, retail prices can be far less than marginal cost, particularly when demand approaches the system's capacity and scarcity rents become large. Economists
have long advocated for variable prices that come as close as feasible to marginal cost. While nominal
gains in conventional power systems are modest, variable retail pricing also alleviates market power in
wholesale markets, which can be substantial. Variable pricing is also becoming more valuable with
intermittent solar and wind growth. For the island of Oahu, the benefits of RTP are 6-12 times greater in a
decarbonized system compared to a conventional one, depending on demand and cost assumptions. In this
paper, we evaluate the benefits of RTP and TOU nationally using a high-resolution implementation of
Switch, open-source software that simultaneously resolves investment, hourly chronological operations,
and demand across 26 regions, including crucial weather links. We use this model to project the effects of
the Inflation Reduction Act on the decarbonization pathway and how much RTP and TOU would shift
that path. We also quantify the social benefits from both emissions reductions and consumer benefits.
Without RTP or TOU, projected emissions reductions align with recent studies. The model projects a
considerably faster decarbonization pathway with RTP that meets or exceeds ambitious decarbonization
goals while generating significant additional consumer benefits. Gains from TOU are substantial but far
less than RTP.

Good Rates Sunshine: The Causal Impact of Time-of-Use Rates on Residential PV Adoption

Jenya Kahn-Lang
,
Resources for the Future
Karen Palmer
,
Resources for the Future
Peter Cappers
,
ABT Associates

Abstract

There has been increasing regulatory support for time-of-use (TOU) electricity rate designs, and
simulation studies suggest that residential photovoltaic (PV) adoption could be highly sensitive to
switching to TOU rates. At the same time, research suggests that most residential consumers are
inattentive to their electricity rate choices and the rate designs they face. There is little ex-post empirical evidence on how TOU rates impact PV adoption in practice and whether residential customers consider rate design when deciding whether to invest in PV. This paper fills this gap by empirically estimating the causal impacts of optional and mandatory time-of-use rates on residential PV adoption. Our findings provide important insights for regulators and utilities about the tradeoffs between efficient short-run and long-run electricity pricing and the role of alternative policies for incentivizing greenhouse gas-mitigating technologies.

Discussant(s)
Casey Wichman
,
Georgia Institute of Technology
Jesse Buchsbaum
,
Resources of the Future
Lucas Davis
,
University of California-Berkeley
Katrina Jessoe
,
University of California-Davis
JEL Classifications
  • L9 - Industry Studies: Transportation and Utilities
  • Q4 - Energy