Household Response to Time-Varying Electricity Prices

The diffusion of smart metering technology and intermittent renewable electricity generation capacity makes the deployment of time-varying electricity rates increasingly feasible and important to the functioning of electricity grids. Such rates, which economists advocate to more efficiently match supply and demand, remain rare, though experiments assessing consumer responses are not. This review synthesizes evaluations of these experiments in the context of a theory of consumer inattention and adjustment costs that posits a role for automation technology to boost the short-run price elasticity of demand and affect demand-side reductions that can lower generation costs.