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BEUCResearch on consumer risks and benefits of dynamic electricity price contracts – A risk or an opportunity to save?

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Authors:
Iakov Frizis & Stijn Van Hummelen

Release date:
February 2022

Publication:
Cambridge Econometrics, Belgium, final report

This study was requested by the BEUC (The European Consumer Organisation) and carried out by Cambridge Econometrics. The objectives of the study are:

  • To estimate the monthly, quarterly, and annual electricity costs for an archetype household in Austria and France, under varying conditions and use cases:

    • Assuming the archetype household had a fixed price contract in 2020 and 2021
    • Assuming the archetype household had a dynamic price contract in 2020 and 2021

  • To explore the differential impact of optimization with a dynamic price contract, assuming that electric vehicle (EV) charging, washing, dishwashing and tumble drying is carried out when the electricity price is lowest in the day.
  • To assess the risks and benefits associated with dynamic pricing contracts, and formulate policy implications for price regulation, on the one hand, and for electricity cost simulations for households, on the other hand.

Several high-level policy implications are inferred from the analysis. Publicly available data regarding variable prices paid by households and electricity consumption by type of household and consumption category is sparse or non-existent. More efforts to collect and publish such data would facilitate policymaking and improve consumer protection. Households should be well-informed about the seasonal and intra-day variations in dynamic prices, as well as their past consumption levels and electricity prices with as much granularity as possible, and how this would have compared with a fixed price contract. They should also be given sufficient information and tools that allow them to assess the extent to which they are able to use appliances flexibly. The price increases in 2021 illustrate that the main risk of dynamic or variable pricing lies with long-term volatility and sustained prices increases in electricity prices on the market. Placing ceilings and/or other restrictions to sustained price increases over time would mitigate the risk for households while the main objective of demand-side management within a day can still be met.

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