Form Submission: Participation Entry

Abstract: 
Increasing block pricing (IBP) was first introduced in 1974 to promote energy conservation and help low-income households in South Korea. However, whether residential customers respond to such complex nonlinear pricing at exact marginal prices still remains unclear. In this paper, I use 2016-2017 household billing data and simulated instruments to estimate price elasticities of residential electricity demand in Seoul. Using average and marginal prices yielded price elasticities of -0.12 and -0.21 respectively. I also examine consumers’ perceived price of residential IBP schedules through encompassing test. The result suggests that Korean customers respond to both average and marginal prices or expected marginal price. This points to a need for meticulously designed pricing schedules that can minimize confusion and maximize efficiency and equity benefits of IBP in the long run.