Assessing the Economics of Residential Electricity Tariff Selection

Abstract

As residential customers become a more integral part of the electricity system the importance of electricity tariffs increases. The widespread adoption of new, economically efficient tariffs for residential customers can yield substantial system benefits. However, in liberalized electricity markets tariffs are selected by each individual household. System-beneficial tariffs do not necessarily bring private benefits for each household. Therefore, it is important to enable households to make well-informed decisions about which tariff to select. Assistance for such decisions can come from adequate Decision Support Tools which have been called for from the European Commission. To this end we design a set of six tariffs, based on empirical data: four different time-of-use (TOU) tariffs, one real-time pricing (RTP) tariff, and a benchmark tariff with a flat, invariant price (Flat). Applying the tariffs to a consumption data set of more than 100,000 customers we find that for a small share of customers electricity bills vary substantially under different tariffs. We present and evaluate a naive approach which recommends an annual tariff to each household, based on information from one month. We find that the performance of this naive classifier differs strongly between tariffs. Finally, we assess the economic consequences of false tariff selection and find that overall economic risks are highest for the RTP tariff.