Demand response in experimental electricity markets

Abstract

We study consumers’ behavior in an experimental electricity market. Subjects make decisions concerning the quantity of electric energy they want to consume in three different pricing environments. In the baseline framework, they decide under a system of fixed prices, invariant to consumption schedule as well as to network restrictions. The other two environments correspond to dynamic pricing systems combined with incentives that aim at cutting energy consumption in a number of selected situations characterized by high network congestion. In such situations, in the first environment subjects get a bonus if they reduce their peak consumption below a certain level, while in the second one, consumers are sanctioned for consuming in peak times. From a social welfare perspective, our experimental data confirm that a dynamic system for prices is more efficient than a fixed one. Moreover, a dynamic scheme with sanctions, although less preferred by consumers, is more effective than the one with bonuses in order to reduce peak consumption. Dynamic pricing with bonuses reaches a good balance between efficiency and consumer acceptance.