No Chance for Variable Electricity Rates

A new study by WHU - Otto Beisheim School of Management analyses the reasons why consumers predominantly reject variable electricity rates despite their high savings potential. However, it also shows a solution to increase their acceptance.

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Recently, the phasing out of coal in Germany by 2030 at the latest was demanded as an essential measure for climate protection and thus the further expansion of renewable energy sources such as wind or solar. As a result, supply will become increasingly difficult to reconcile with demand. Electricity shortages or overcapacities are the results, which increasingly leads to situations in which expensive additional energy sources have to be connected, or energy producers have to pay negative electricity prices for the use of surplus energy. The bill for this is ultimately paid by the end consumer via higher electricity prices or the EEG levy.

The use of variable electricity prices to create a financial incentive for end consumers to shift electricity use in times of low demand is often discussed. The study conducted by WHU in cooperation with Goethe University Frankfurt examines the acceptance of the end consumer of variable electricity prices and the reasons for their rejection. 

"At least 56 percent of time-dependent rates, such as discounted night rates, would still be accepted, but only if high savings of 20 percent in the electricity bill were possible. This certainly does not pay off for the power generator," explains Professor Dr. Christian Schlereth. "Dynamic rates in which the price of electricity is constantly adjusted to supply and demand are completely rejected."

At the same time, the study also shows a solution to increase acceptance. "End consumers lack experience in dealing with variable electricity rates. They fear to receive significantly higher electricity bills at the end of the month. An effective instrument for significantly increasing the acceptance of variable electricity rates would be cost hedging, for example, a guarantee given by the provider that the customer will not pay more than the current static electricity rate. Consumers would gain experience in dealing with variable rates and would also have the opportunity to save money without risk".

The study is published in the current issue of the European Journal of Operational Research.

Schlereth, Christian / Skiera, Bernd / Schulz, Fabian (2018): "Why do Consumers prefer Static instead of Dynamic Pricing Plans? An Empirical Study for a better Understanding of the Low Preferences for Time-Variant Pricing Plans", European Journal of Operational Research, 269(3), 1165-1179.