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Faculty of Economics

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Richter, L.-L. and Pollitt, M.

Which Smart Electricity Service Contracts Will Consumers Accept? The demand for compensation in a platform market


Abstract: This paper considers the heterogeneity of household consumer preferences for electricity service contracts in a smart grid context. The analysis is based on original data from a discrete choice experiment on smart electricity service contracts that was designed and conducted in collaboration with Accent and 1,892 UK electricity consumers in 2015. The results suggest that while customers are willing to pay for technical support services, they are likely to demand significant compensation to share their usage and personally identifying data and to participate in automated demand response programs. Based on these findings potential platform pricing strategies that could incentivise consumers to participate in a smart electricity platform market are discussed. By combining appropriate participation payments with sharing of bill savings, service providers could attract the number of customers required to provide the optimal level of demand response. We also examine the significant heterogeneity among customers to suggest how, by targeting customers with specific characteristics, smart electricity service providers could significantly reduce their customer acquisition costs.

Keywords: Discrete Choice Experiment, smart energy, Willingness-to-Accept, platform markets

JEL Codes: C18 C38 D12 L94 Q42 Q55

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EPRG Paper Link: 1616

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