A review of electricity product differentiation

•Electricity has distinct attributes for forming differentiated products.•This paper is a literature review of electricity product differentiation.•It describes real-world examples of product differentiation.•It finds product differentiation improves grid operations and planning. This review is motivated by our recognition that an adequate and reliable electricity supply is a critical element in economic growth. From a customer’s perspective, electricity has several distinct attributes: quality, reliability, time of use, consumption (kWh) volume, maximum demand (kW), and environmental impact. A differentiated product can be formed by packaging its non-price attributes at a commensurate price. The review weaves the academic literature with examples from the real world to address two substantive questions. First, is product differentiation a meaningful concept for electricity? Second, can product differentiation improve grid operations and planning, thereby lowering the cost of delivering electricity services? Based on our analysis and comprehensive review of the extant literature, our answer is “yes” to both questions. We conclude that applying product differentiation to electricity can greatly induce end-users to more effectively and efficiently satisfy their demands upon the system, and to do so in an environmentally friendly way.