Dynamic Pricing

Abstract

The success story of dynamic or variable pricing is told by economists. Evidence from 30 years of sustained economic research demonstrates substantial and sustained reductions in household electricity demand during peak times — between 13 and 20 per cent for critical peak pricing (CPP) — or much more (27–44 per cent) when combined with energy feedback and ‘enabling’ technologies such as smart thermostats (Faruqui & Sergici 2010). These broad-brush statistics mask the ways in which dynamic pricing intersects with everyday routines and what becomes malleable and adaptable as a result. Analysed almost solely in terms of householders’ price responsiveness, electricity consumption is positioned as relatively inelastic, inflexible and non-negotiable unless ‘the price is right’. However, this position is continually confounded by the finding that the seemingly non-negotiable practice of air-conditioned cooling is increasingly negotiable with hotter temperatures and where more consumers own these devices (eMeter 2010; Faruqui & George 2005).