Does Differential Off-Peak Electricity Pricing Affect Usage?

John Williams, Rob Lawson and Paul ThorsnesSchool of Business

Synopsis of Project

• Mercury Energy contacted Otago University for help with a pricing experiment

• Rob and Paul responded and set up study, John joined later

• Question: Does pricing household electricity differently at peak and off-peak times induce “load shifting”?

• Peaks strain the physical infrastructure and have negative financial impacts on retailers

Study Design: Experimental Groups• Five experimental groups (four treatment

groups + one control group)Name Information Price Difference On-Peak Off-Peak

High Yes 20¢ 30.79 10.79

Med Yes 10¢ 24.52 14.52

Low Yes 4¢ 20.29 16.29

Info Yes None18.29

Control None None

• “Off-peak” is from 7PM to 7AM weekdays; weekends & public holidays

Study Design: Sample

• Approximately 400 households in Auckland (Pakuranga)

• Recruited by Mercury Energy • Allocated by Mercury to experimental groups• All participants got:– A monthly report of usage, including daily and

monthly peak and off-peak usage– Access to usage info via the Web– A list of energy-saving tips

Study Design: Data

• Study ran from 1 August 2008 to 31 July 2009• Mercury supplied us with daily readings for

both peak and off-peak periods (i.e. two readings per day for each household)

• Also supplied data for corresponding period one year before the experiment began

• Technical problems with data: only December 2007 onwards is usable

Energy Usage: Seasonality

Proportion of Off-Peak Use

Christmas

ANZAC

Waitangi Easter

Group EffectStart of Experiment

Panic!• Identified systematic variations across

experimental groups which confound results• Significant amount of unusable data• Solution: compare within households– Examine the differences in energy use in a period

(week, month, year) during the experiment and compare with the corresponding period before the experiment

– Scale: proportional change from baseline (+ve values indicate increase in study period)• (Before – During) / Before

Total Usage Change

Proportional Usage Change

Prop. Off-Peak Usage Change

Differences by Year: Total (%)

Differences by Year: Prop Off-Peak(%)

Summary

• Systematic differences between experimental groups complicates analysis enormously– Not possible to directly detect influence of pricing

• Comparison to previous period is suspect– Don’t know if change was part of a pre-existing trend

• Solution: comparison to baseline, expressed as a proportion, puts all groups on common metric and allows comparison between groups

• Result: possibly a conservation effect (“significant” but R2 tiny); no evidence of a switching effect

Where to from here?• Caveats: data is difficult to deal with, i.e. Missing values

and outliers — have not fully investigated impacts of this yet

• May need to take other non-random differences into account (characteristics of households)

• Not 100% (or even 95%) confident of results yet• Mercury ran a post-survey, but we haven’t had time to

search it for clues yet ...• Some households did use less energy, and some used

more off-peak: what makes them different from those who didn’t?

Tentative Conclusions

• Absolute magnitude of financial incentives may have been too low — but note the large price difference is outside the margins that a retailer could realistically offer

• Attitudes and values may have bigger impact than $$$, also could be interactions (further analysis)