Effectiveness of zero pricing in TOU demand reponses at the residential level

Abstract

As a vital part of the Smart Grid concept, load participation has been widely accepted and applied by power industries. As an effective tool to improve reliability, stability, and financial efficiency of the power grids, Demand response (DR) has brought numerous financial and technical benefits to power systems. As one of the price-based DR programs with less control costs, the Time-of-Use (TOU) program has been applied as default rates by many utility companies. To avoid financial risks and make the most profit out of the wholesale market, utility companies treat TOU as an effective marketing strategy to change customers' electricity consumption patterns. However, due to the complexity of human behaviors and disparities of residential locations, many of the existing TOU programs are not as effective as expected. The purpose of this research is to examine the key reasons underlying the ineffectiveness of most extant TOU programs, and to demonstrate that zero pricing can be a remedy, due to its unique properties in enhancing consumers' responsiveness to TOU programs. Actual utility usage data from residential consumers in both Shanghai (China) and Texas (USA) are used to support our propositions. Properly implementing zero pricing into TOU programs with scientific strategy has the potential to bring considerable profit for utility companies.