A Household’s Power Load Response to a Change in the Electricity Pricing Scheme: A Microeconomic-Physical Approach

Abstract

Energy economists are interested in how a change in electricity prices prompt a response by way of end-user power demand. If historical prices are low and infrequently-changing, it becomes difficult to estimate price elasticities statistically, especially in the short-run. This paper extends on a previous analysis by incorporating more demand-reducing measures within a utility maximization framework for households. The framework is informed the physical equations that govern how electricity is consumed. The measures considered are:

1. independently adjusting the thermostat set-point across seasons,

2. turning off lights, and

3. switching off consumer electronics.

We have calibrated the physical component for a dwelling in Saudi Arabia. Domestic electricity tariffs in the progressive pricing structure were partially raised in 2018. In addition to those raises, the response to other electricity pricing schemes is analyzed: time-of-use and real-time prices.

We show that for a household with a low preference for electricity, the 2018 price increases do warrant adjustment in indoor temperature in the hot summer months and lower electricity use for consumer electronics. Since we adopt a dwelling in Saudi Arabia, the response measure that is most exercised is thermostat set-point adjustments. A subdued response is found for households that have adopted higher energy efficiency, or have high preference for electricity.