Consumer rationality assumptions in the real-time pricing of electricity

Abstract

Dynamic tariffs such as RTP (real-time pricing) and day-ahead pricing function as load management tools because they interact with consumer behaviour. Hence analytical models for an electricity supply system with RTP would need to incorporate behavioural models for consumers. These models have to be logically and mathematically consistent and empirically meaningful. The model developed here relies on the concepts of demand elasticity across time, degree of consumer economic rationality and, on the supply side, on the price formation model. The paper explores a range of assumptions in respect of these matters.