A Data-driven Fairness-based Time of Use Tariff Design

Abstract

Time of use (TOU) tariffs aim to shape demand, by reducing peak demand and otherwise changing the load shape, which is of heightened relevance as energy supplies come under pressure and transition from fossil fuels to more volatile renewable sources. However, TOU tariffs may carry distributional consequences, such as higher bills for all users/low-income users. With the increasing prospect of steep increases in energy bills in Europe, a fairness-based approach TOU tariff design deserves proper attention by the world’s regulatory regimes. A flexible, fairness-based TOU tariff design is proposed, utilizing a 4-step data-driven approach to segment households by income and price responsiveness, followed by potential tariff filtering to simultaneously lower total costs, distribute cost savings progressively and maintain constant utility profitability. The new tariff design approach is demonstrated using the 2009-10 Irish Smart Metering Trial, and produces promising results.