A Pareto Superior Incentive Scheme for Residential Electricity Conservation: A Case Study of Shenzhen City in China

Shenzhen’s residential inclining tier rates are designed to encourage electricity conservation. However, the rates for customers with relatively low consumption fall below Shenzhen’s estimated marginal generation cost, leading to economically inefficient overconsumption. Therefore, we propose an incentive scheme with voluntary participation to promote residential electricity conservation. We further demonstrate that this scheme is Pareto superior, as its implementation can benefit participating customers without adversely affecting the electric utility or non-participating customers.