A household’s power load response to a change in the electricity pricing scheme: An expanded microeconomic-physical approach

Energy economists are interested in how changes in electricity prices prompt a response in end-user electricity demand. If historical prices are low or seldom change, it becomes difficult to estimate price elasticities statistically, especially in the short-run. Thus, a framework that merges the physical equations that govern how electricity is consumed, and a utility-maximizing household the responds to varying expenditures on electricity, is used.We have parameterized the physical component to a house in Saudi Arabia. Three electricity pricing schemes are analyzed: progressive tariffs, time-of-use prices, and real-time prices. We show that for a household with a low preference for electricity, slight price increases do warrant adjustment in indoor temperature in the hot summer months and lower consumer electronics use. Since we adopt a dwelling in Saudi Arabia, the response measure that is most exercised is the thermostat set-point adjustment. A subdued response is found for households that have adopted higher energy efficiency, or have high preference for electricity.