Title: A dynamic pricing approach to electricity prices in the Indian context

Authors: Kinnary R. Desai; Goutam Dutta

Addresses: Indira Gandhi Institute of Development Research, Gen. A.K.Vaidya Marg, Goregaon (E), Mumbai 400 065, India ' Indian Institute of Management, Vastrapur, Ahmedabad 380015, Gujarat, India

Abstract: In this paper, we study the mechanism of dynamic pricing of electricity and its opportunities in the Indian context. We compare the economic efficiency of dynamic pricing vis-à-vis the traditional flat tariff of electricity. We analyse various ways in which dynamic tariff can be introduced in the electricity market and we show the Indian experience in this regard. We consider the state of Maharashtra, in particular, to understand how the time of day (TOD) pricing system has been introduced and how it is more efficient than the flat tariff approach. We develop a mathematical model using pseudo-real data (as per the advice of a renowned sector expert) to show how TOD tariff is more efficient than flat tariff and how real-time pricing (RTP) tariff is associated with the uncertainty of electricity bills. We further emphasise how the dynamic pricing system can be modified to increase its efficiency.

Keywords: dynamic pricing; electricity prices; time of day; electricity pricing; time of use; revenue maximisation; Excel Solver; revenue management; India; flat tariff; demand side management; dynamic tariff; mathematical modelling; real-time pricing.

DOI: 10.1504/IJRM.2013.059625

International Journal of Revenue Management, 2013 Vol.7 No.3/4, pp.268 - 288

Published online: 03 Mar 2015 *

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