Time is Money: The Social Benefits of Time-of-Use Tariffs

In this study, we first estimate the impact of a mandatory time-of-use (TOU) pricing policy on the aggregate electricity load and find evidence for statistically significant load-shifting effects. Next, we develop a data-driven method to examine the impact of the TOU pricing policy on social benefits in the electricity industry, including reductions in fuel costs, greenhouse gas emissions, capital investment in generation capacity, transmission congestion, and ancillary services. Our estimates reveal that the TOU tariffs yielded social benefits equivalent to 4.5 percent of wholesale electricity generation costs. With tariff redesign, this percentage could increase to 7.6 percent. Our analysis suggests that, when formulating TOU tariffs, policymakers should prioritize their impact on capital investment, from which the majority of social benefits (98%) stem. JEL Classification: D40, Market Structure, Pricing, and Design: General; L94, Electric Utilities; D61, Allocative Efficiency; Cost-Benefit Analysis; C15, Statistical Simulation Methods: General