Three Essays on Electricity Demand
Date
2018-07-10
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Abstract
This dissertation examines how prices, policies and climate change affect electricity demand today and in the future. As an essential yet intangible commodity, electricity presents as a fascinating subject in which to study consumer behaviour. In a series of three essays, I employ an array of empirical techniques to identify the effect of different pricing schemes, policies such as daylight saving time, and the possibility of rising temperatures due to climate change have on demand. In each case, my research digs deeper than identifying average effects: I uncover underlying heterogeneous consumer behaviour that includes price misperception; rationalize differences in regional responses to DST based on differences in (natural) sun times and (societal) waking hours; and consider the effect climate change will have on the all-important intraday shape of demand for difficult-to-store electricity.
Chapter 1 considers how consumers respond to prices. Specifically, I examine how residential electricity consumers in British Columbia respond to the introduction of a two-tier tariff, whereby the price of an additional unit of electricity rises when consumption goes beyond a threshold. I exploit a near-ideal natural experiment, where the provincial utility, BC Hydro, changed to a two-tier pricing scheme while the City of New Westminster, which sets its own rates, did not. Using household-level billing data, I find a significant reduction in demand for BC Hydro households near the threshold of the two-tier rate. This suggests a response to marginal prices, in contrast to findings from recent literature that found electricity consumers respond to average, not marginal prices. However, a deeper dive into heterogeneous responses across households leads to a different conclusion: consumers simply misunderstanding nonlinear prices. This result has implications for policy makers trying to achieve conservation goals in better understanding how consumer respond when faced with complex prices. Chapter 2 revisits the question of whether daylight saving time (DST) policy saves electricity. While the original premise of DST was energy savings, recent research has cast doubt on its efficacy of doing so. Using hourly electricity demand data across all the Canadian provinces, I estimate the causal effect of the DST transition on electricity consumption. I find the results differ across provinces in a predictable manner: in provinces with early sunrises and/or late waking hours, DST saves electricity. Whereas, in provinces with late sunrises and early waking hours, the DST transition causes otherwise sunlit woke morning hours to be darkened, and thus increases electricity use. The key contribution of this study is to provide an empirically-tested intuitive explanation as to the heterogeneous effect of DST on electricity use. The implication for policy makers considering whether to adopt, keep or abolish the policy is that location matters. Chapter 3 examines how climate change will affect both the level and timing of future electricity demand across Canada. Using an original dataset of hourly electricity demand across all Canadian provinces combined with household-level microdata on air conditioner ownership, we estimate temperature responsiveness including both the direct effect of temperature on demand for cooling services, as well as the indirect effect of increasing the stock of temperature-sensitive durables, such as air conditioners. We find only a small increase in total demand by end-century, although the result differs across provinces. The small aggregate result reflects the mitigating effect of rising temperature in a cold country such as Canada, whereby increases in electricity demand for air conditioning as summer temperatures rise is largely offset by reduced winter heating demand. Although we project limited change in overall electricity demand, we do project changes in the timing of demand, both seasonally and diurnally. In particular, we find seasonal peaks shift from winter to summer in most regions, as well as a large increase in intraday ramping requirements---the difference between minimum and maximum demand within a day---suggesting electricity systems of the future will place an even greater value on storage and flexibility. This result from the demand side adds to pressure already coming from the supply side, where more variable energy renewables are increasing the need for storage and flexibility in electricity grids.
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Keywords
Economics, Energy, electricity, demand
Citation
Shaffer, B. C. (2018). Three Essays on Electricity Demand (Doctoral thesis, University of Calgary, Calgary, Canada). Retrieved from https://prism.ucalgary.ca. doi:10.11575/PRISM/32347