Enacting a market: how consumers relate to a free market for electricity

7/30/2019 Enacting a market: how consumers relate to a free market for electricity

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Enacting a market

Understanding the electricityconsumption of households

Henrik Karlstrm, Norwegian University of Science and

Technology


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Introduction

When energy conservation is a concern, how to proceed toachieve it?

Presently, two strategies are being pursuedo Using the marketo The environmental route

How has the switch to a free market for electricity and

increased focus on environmental issues affected energyconsumption in Norway?


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Market efficiency

Standard economic theory dictates that rational consumerslimit their energy consumption in line with price fluctuations

A system with low or non-existing transfer costs and ascomplete price information as possible is preferable

The question then becomes whether consumers act

accordingly


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Environmental morals

Environmental issues are prevalent in the public discourse

In terms of energy savings, it takes on a moral note: withglobal warming, not conserving energy is morally wrong The question then becomes one of convincing consumers

and then letting them take action of their own will


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Politics receding

Both strategies rely on individual responsibility forandinterest inreducing consumption

This is connected to the deregulation of the electricity

marketo It was designed for politicians to step away from the

workings of the energy markets What happens when individual actions are not in line with

expectations?


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But how efficient?


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Energy in Norway

Norway is in many ways unique:o One of the world's oldest completely deregulated

electricity market (since 1990)o Electricity production is almost completely hydro power:

cheap and renewable Production side is a free market, distribution is a natural

monopoly This year, historically cold winter and, with that, historically

high electricity priceso Renewed debate about constructing gas plants


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Data material

Based on a representative survey of 1500 respondents Asked about attitudes towards and behaviour regarding the

electricity market and energy conservation


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Market behaviour


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Market behaviour


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Other market findings

The regions with the highest prices are least active users ofthe market

Low income households likewise One third say they are already doing all they can to reduce

consumption Conversely, one third say prices would have

to permanently increase by at least 50 % for this to happeno This is reflected in consumption patterns when prices

periodically rise drastically


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Environmental findings

70 % find the threat of anthropogenic climate changeserious

60 % say they have made lifestyle changes because of this

threato Most of this is due to perceived energy consumption

reductions (which are barely noticable in the numbers)and improved waste sorting

80 % think it is important that their energy comes fromrenewable sourceso 1/3 of these would pay more for a renewable guarantee

80 % think other people waste electricity


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Political findings

75 % think politicians don't do enough to promote renewableenergy

67 % think there should be more political control over the

price of electricityo But 40 % think the market liberalisation has led to lower

prices 70 % think there should be more political control over the

construction of more electrical power in Norway 75 % think investments in new electrical power are too low

o 80 % think power utilities have excessive profits


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Conclusion

Although some consumers act according to free marketintentions, in general people are not overly market orientedo Market learning is limited

Consumers are more driven by moral considerationso But is it "old-fashioned" thriftiness or worry over climate

change? They also want the return of politics

o Running to daddy when things turn rough? Question: What mechanism can obtain energy savings,

when economic and moral signals have limited value?

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Enacting a market: how consumers relate to a free market for electricity