Economic impacts of time-varying pricing in the electricity markets

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School of Business | Bachelor's thesis
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Degree programme
23 + 1
The thesis studies economic impacts of time-varying pricing in the electricity markets for electricity producers, consumers and the environment based on existing literature. The topic is relevant for markets that still widely use simple pricing methods for end-users that do not reflect the true balance of supply and demand of electricity. The main objective was to evaluate whether time-varying pricing, especially real-time pricing (RTP), has benefits for different players in the market. The findings give support for economists that favor real-time pricing. The thesis also evaluates why this pricing method has not been implemented worldwide. Results indicate that RTP increases economic efficiency and social surplus. Although electricity price elasticity is low, consumer surplus increases. However, opposing of RTP exists, because it increases electricity prices for consumers during peak hours. We find that automation of electricity consumption control is essential for the use of RTP in a larger scale. Contrary to conventional wisdom, based on existing literature direct environmental benefits are not found. Therefore, there exists a need for further research.
Thesis advisor
Mustonen, Mikko
hintajousto, hinnoittelu, sähkömarkkinat, kuluttajakäyttäytyminen
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