The effect of electricity time-of-use plans: Evidence from the industrial sector in China

Time-of-use (TOU) pricing plans are crucial energy market mechanisms implemented worldwide. Using a staggered difference-in-differences research design and hourly electricity data from industrial customers, this study goes beyond simply assessing the effectiveness of TOU pricing. It investigates under which circumstances TOU pricing may effectively contribute to peak shaving and valley filling. Our results indicate that high-peak-price TOU pricing may induce peak-shaving effects for both large- and small-scale industrial customers but does not lead to valley filling. Conversely, low-peak-price TOU pricing increases electricity consumption among large-scale industrial customers, regardless of whether it is a peak or valley period. In terms of expenditure, the shift from a flat rate to TOU pricing is associated with a 1.7 % reduction in monthly electricity costs for large-scale industrial customers. Furthermore, high-peak-price TOU pricing significantly improves demand stability, leading to a 4.7 % reduction in the peak-to-valley load ratio. • Using a staggered difference-in-difference research design and hourly electricity data from industrial customers, this study investigates under which circumstances TOU pricing may effectively contribute to peak shaving and valley filling. • Applying a two-way fixed effects model, we find that the overall impact of TOU pricing on daily electricity consumption varies among industrial customers of different scales and with different peak-price TOU pricing plans. This divergence elucidates the mixed evaluation of TOU's effects on electricity consumption in the literature. • Further analysis of TOU's effects on electricity consumption reveals that TOU only exhibits peak-shaving effects when peak prices are sufficiently high for large industrial customers. Conversely, low-peak-price TOU pricing leads to an increase in the electricity consumption of large-scale industrial customers in peak, flat, and valley periods. For small customers, both high- and low-peak-price TOU pricing significantly reduces peak electricity usage, and does not have a valley-filling effect. • Introducing TOU brings electricity cost reductions for both customer categories. The shift from a flat rate to TOU leads to a reduction of monthly electricity costs by 1.7 % for large-scale industrial customers. For small-scale industrial customers, due to significant total electricity consumption decrease, expenditure reduces by 55.5 % under the TOU structure. • We utilize the peak-to-valley load ratio to measure power grid demand stability, uncovering a substantial impact of TOU pricing. The results show that TOU leads to a 4.6 % reduction in the peak-to-valley load ratio. Under a high-peak-price TOU, the peak-to-valley ratio gap between the treatment group and the control group is even larger, reaching up to 8.1 %, which indicates the significant benefits of the TOU policy in stabilizing electricity demand.