Cost-reflective electricity pricing: Consumer preferences and perceptions Nina L. Hall a,n , Talia D. Jeanneret a , Alan Rai b a Commonwealth Scientific and Industrial Research Organisation (CSIRO), 1 Technology Ct, Pullenvale QLD 4069, Australia b Formerly Commonwealth Scientific and Industrial Research Organisation (CSIRO), 10 Murray Dwyer Circuit, Mayfield West NSW 2304, Australia HIGHLIGHTS  Electricity price rises can be limited by ‘cost-reflective’ pricing.  We consulted residential electricity consumers on Time-of-Use and Peak Capacity pricing.  Understanding of peak electricity demand must increase to enable demand shift.  Interactive website could enable consumers to evaluate pricing options.  Smart meter adoption may increase if voluntary and includes an in-home display. article info Article history: Received 7 May 2015 Received in revised form 14 March 2016 Accepted 26 April 2016 Keywords: Cost-reflective pricing Flexible pricing Residential Time-of-Use Societal acceptance Smart meters abstract In Australia, residential electricity peak demand has risen steeply in recent decades, leading to higher prices as new infrastructure was needed to satisfy demand. One way of limiting further infrastructure- induced retail price rises is via ‘cost-reflective’ electricity network pricing that incentivises users to shift their demand to non-peak periods. Empowering consumers with knowledge of their energy usage is critical to maximise the potential benefits of cost-reflective pricing. This research consulted residential electricity consumers in three Australian states on their perceptions and acceptance of two cost-re- flective pricing scenarios (Time-of-Use and Peak Capacity pricing) and associated technologies to support such pricing (smart meters, in-home displays and direct load control devices). An energy economist presented information to focus groups on the merits and limitations of each scenario, and participants’ views were captured. Almost half of the 53 participants were agreeable to Time-of-Use pricing, but did not have a clear preference for Peak Capacity pricing, where the price was based on the daily maximum demand. Participants recommended further information to both understand and justify the potential benefits, and for technologies to be introduced to enhance the pricing options. The results have im- plications for utilities and providers who seek to reduce peak demand. Crown Copyright & 2016 Published by Elsevier Ltd. All rights reserved. 1. Introduction The purpose of this article is to explore consumer interest and responses to the concept of cost-reflective pricing (CRP), within the context of current understanding of electricity pricing struc- tures and delivery mechanisms, perceptions of energy afford- ability, and attitudes toward energy security. The need for this research is the growing demand for residential electricity in Aus- tralia, matched with a lack of price signals in the pricing structure that could otherwise encourage a change in consumption patterns. In Australia, households are responsible for around 25% of Australia's total electricity consumption but constitute a higher proportion of peak demand (BREE 2013, Productivity Commission, 2013). Over the two decades to 2012, peak demand in each Aus- tralian state grew by 50–100 per cent. This was partly driven by increased air-conditioner ownership among households which more than doubled from around 30 per cent to around 70 per cent during the period (ABS 2011, DEWHA 2008). This growth required ongoing investment in network capacity. Between June 2007 and December 2012, real residential electricity prices rose 70 per cent across Australia, with around half of this rise due to the invest- ment in extra network capacity (Productivity Commission, 2013). Growing peak demand is not in and of itself an economic problem. Rather, the issue is whether the level of peak demand is economically efficient, which depends on whether the utility Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy http://dx.doi.org/10.1016/j.enpol.2016.04.042 0301-4215/Crown Copyright & 2016 Published by Elsevier Ltd. All rights reserved. n Corresponding author. E-mail addresses: nina.hall@csiro.au, NinaLHall52@gmail.com (N.L. Hall), talia.jeanneret@csiro.au (T.D. Jeanneret), alan.rai17@hotmail.com (A. Rai). Energy Policy 95 (2016) 62–72