We examine the effects of real-time pricing on welfare and consumer surplus in electricity markets. We model consumers on real-time pricing who purchase electricity on the wholesale market. A second group of consumers contracts with retailers and pays time-invariant retail prices. Electricity generating firms compete in supply functions. Increasing the number of consumers on real-time pricing increases welfare and consumer surplus of both types of consumers. Yet, risk averse consumers on traditional time-invariant retail prices are always better off. Collectively, our results point to a public good nature of demand response in power markets when consumers are risk-averse.
|Place of Publication||Frederiksberg|
|Publisher||Department of Economics. Copenhagen Business School|
|Number of pages||26|
|Publication status||Published - 2020|
|Series||Working Paper / Department of Economics. Copenhagen Business School|
- Real-time pricing
- Market power