Thursday, July 8, 2010

Time-of-Use Electricity Pricing and Economic Incentives

Time-of-use electricity pricing has made it to my area. Electricity rates on weekends and overnight are about half of the cost during peak hours. This creates an economic incentive for people to shift electricity use to off-peak hours.

In principle, this approach makes sense. People respond to incentives. According to the mailing I received, I can save 17 cents by setting my dishwasher to run overnight instead of running during peak hours. This isn’t enough to get me to change my behaviour much, but it is likely to get some people to change, and this will help to smooth out demand.

A more cynical view is that this form of pricing is just more complicated and will ultimately lead to higher electricity prices without the average person being able to figure out as easily that prices have risen. Although the initial changes appear to be revenue-neutral, the groundwork has been set to make it easier to raise prices without as much complaint.


  1. Did it appear revenue neutral in your area? I've forgotten the details since I looked at it in Toronto, but I vaguely remember that it was going to lead to a price jump right away if we assumed that even a slight majority of our power use was during peak periods (they are peak periods for a reason). Even if we managed to flatten it out over the day, I don't think the average price through the day was equal to the price before...

    Oh, just looked it up, even the off-peak rate in Toronto is almost as high as the flat rate was before, and both the other times are substantially higher.

  2. @Potato: Here, the time-weighted average price is 6.76 cents per kW-hour in summer and 6.88 cents in winter. The old rates were 6.5 cents for the first 600 kW-hours per month and 7.5 cents for the rest. This 600 kW-hour threshold was higher in winter. This is close to revenue-neutral for me, but likely represents a modest increase for the average user. However, I suspect that it will be fairly easy to increase prices further with less complaint than past price increases received.

  3. @Patrick: Good find. It's nice to know that someone knows what I've written better than I do :-)