Residential Electricity Demand: a Roadmap of Main Factors Influencing Customers Consumption
1 Intelligent Well Technology: Status and Opportunities for Developing Marginal Reserves SPE
RESIDENTIAL ELECTRICITY DEMAND: A ROADMAP OF MAIN FACTORS INFLUENCING CUSTOMERS CONSUMPTION
Saplacan Pop Roxana, EDF R&D, +33147655914,
Brzakowski Florence, EDF R&D, +3314765673,
Entem Marianne, EDF R&D, +3314764515,
Overview
In accordance with the general concern about climate change, policy makers, media and lobbies emphasise the need for customers’ behaviour to adapt over time to different ways of using energy resources and other essential goods such as oil, gas and water. In this context, recent proposals to improve the efficiency of energy use in the residential sector (Climate Action and Renewable Energy Package set by the EU Commission in January 2008) have called for changes in electricity end user offers and rate structures. As a consequence, the structure of electricity tariffs must adapt to the need for inducing consumers to modify their electricity use. However, tariffs can be very sophisticated in electricity, and consumers’ behaviour is influenced by other factors, which makes difficult for a retailer to predict how residential consumers will respond to a change in its offer.
In this study we focus on residential electricity demand since an usual agreement seems to persist, that residential consumers do not want to undertake much effort to control and manage their electricity use or to have to think about their electricity consumption (Kiesling, 2007). For example, consumers have little awareness of the energy efficiency of electricity-using appliances (Yamamoto et al., 2008). Knowledge of the factors affecting residential electricity demand and estimation of econometric models of electricity demand, offer an interesting approach for studying the potential impacts of alternative offers on pricing and energy efficiency.
Regarding residential consumers, incentives to use final energy resources more efficiently could be given by changes in both the level and the structure of energy tariffs, as well as by diversified offers which take into account factors, other than prices/tariffs, consumers are sensitive about. Interestingly, with the opening up of energy markets, as a result of the arrival of new entrants to competition these factors diversified, and so did the tariffs and their structure.
Several institutional actors (electric utilities, regulatory commissions, policy makers, researchers and consulting firms) show therefore an interest in predicting accurately the change in energy-use that would result from a change in its price/tariffs and other variables. This requires an assumption of the price elasticity but also of all relevant factors that constitute the household demand pattern of energy and thus influence residential consumers’ behaviour.
Methods
Classical micro-economic tools such as price elasticities, revenue elasticities, consumer behaviour modelling and industrial economy theory are employed.
Results
This paper proposes a roadmap of the main factors influencing consumer’s decision and behaviour as they were defined by the economic and sociologic literature.
The first section accounts for standard results of the literature on electricity demand, mainly on the evaluation of the consumer’s sensitiveness to price signal thanks to its elasticity.
In the second section, after an assessment of the energy saving potential, a global review of incentive rates is conducted: tiered rates, tariffs that are more proportional, and incentive taxes were identified, as well as few commercial offers and complementary measures. We show that monitor-provided information by itself has a modest impact on consumer’s electricity usage. However, information, price incentives, energy efficiency issues and all relevant factors influencing household demand pattern of energy could become a “service pack” used by residential consumers to better control their daily consumption.
In the last section we show that, however, the analysis is restricted by the fact that the attitude or the time a consumer is ready to spend in order to achieve an efficient use of an sophisticated energy management tool is unobservable (Aubin et al. 1995). This raises two questions. First, how do we measure this unobservable variable when data are collected by a firm and cannot bear on all the aspects of consumer behaviour? A micro-economic approach should be used to allow each consumer to value its needs of energy supply. However, measuring this value faces a methodology difficulty of revealing a consumer’s willing to pay for something they cannot physically identify (Flachaire et Hollard, M. Oren, J. Bushnell, S. Borenstein). Second, does a real-time tariff give the right incentive to the consumer?
Conclusions
We conclude on highlighting the major barriers to implementing “packages” of tariffs and energy efficiency services, e.g. the financial disincentive caused by reduced energy sales while nowadays customers consume less. Nevertheless, this consumption reduction also constitutes an opportunity in implementing such “packages”.
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