An analysis of the time of use electricity price in the residential sector of Bangladesh

Abstract

Time of Use (TOU) pricing is a cost-reflective electricity pricing scheme; it has proven to be an effective approach for reducing peak electricity demand in the residential sector around the world, especially in developed countries. The implementation of TOU pricing in low and lower-middle income economies is less appealing than in other settings. This is mainly because a traditional TOU pricing scheme may increase the cost of electricity for low income consumers. The lack of a suitable TOU pricing strategy for these countries results in high peak demand, poor utilization of network infrastructure and, consequently, higher electricity prices than necessary. The purpose of this study is to analyse and propose a TOU pricing scheme for the residential sector that will be suitable for countries with a high percentage of low income household consumers. In this study, Bangladesh will be used as an exemplar of a lower-to-middle income developing country. In Bangladesh, the residential sector is responsible for half the country's total electricity consumption, and constitutes an even greater proportion of the peak demand. Residential consumers currently pay inclining block usage rates that provide no financial incentive for them to shift their electricity usage from peak to non-peak periods. The proposed TOU pricing scheme is a combination of the traditional TOU and inclining block usage pricing schemes, based on a realistic load shifting capacity that is applicable to Bangladesh, and to other similar developing countries. Analysis of this pricing system for different income levels of residential consumers shows that the proposed scheme effectively reduces the peak demand, while ensuring minimum impact on consumer monthly energy bills and comfort levels.