Massachusetts Institute of Technology
To study the economic and equity impacts of alternative electricity rate structures via a randomized controlled trial with rural electricity cooperatives in the Midwest
One of the challenges to making electricity markets operate more efficiently is that most consumers pay flat electricity prices. While this rate structure provides consumers with cost certainty and insulates them from higher prices during extreme events, it does not provide price signals when electricity demand is high and therefore expensive. Some states and utilities are attempting to encourage load shifting or reduced use of electricity during key moments of grid stress through demand response programs, including time-of-use (TOU) programs that define peak and off-peak periods with different prices well in advance, and critical peak pricing (CPP) programs that announce and implement higher electricity prices on shorter notice. Uptake of these demand response programs remains limited in the United States, and there is a lack of research as to how consumers respond to these programs, especially in non-coastal and rural areas. This grant, resulting from an open Request for Proposals on Energy System Electrification, supports a team of economists and engineers from the Massachusetts Institute of Technology and the University of Massachusetts, Amherst aiming to empirically study consumer participation in demand response programs in rural areas through a randomized controlled trial (RCT). Grant funds will allow the team to complete three phases of work through partnerships with local electric cooperatives who have agreed to deploy demand response pricing experiments among their consumer bases. First, the team will implement a demand response RCT, covering at least one winter and one summer season, with a total sample of 43,000 electricity consumers. Participants will be offered different enrollment incentives and information relating to TOU and CPP programs. Next, the team will integrate findings from this RCT into an energy system capacity expansion model that will help understand the impact on broader energy system operations. Finally, the team will analyze the distributional and equity dimensions of the RCT, and they will assess what those findings might imply for other demand response programs across the country. Results from this research will also help electric cooperatives and similar utilities design and implement demand response programs.