Is the clean energy transition making fixed-rate electricity tariffs regressive?

Gordon W. Leslie, Armin Pourkhanali and Guillaume Roger

Journal of Environmental Economics and Management, 2024, vol. 127, issue C

Abstract: Wholesale electricity prices can rapidly change in real-time, yet households usually face fixed-price electricity tariffs. In markets with large amounts of solar electricity generation, households that predominantly import energy in the daytime when wholesale prices are low implicitly cross-subsidize households with energy use that is more weighted to the higher-priced evening. We map substation data on electricity use to demographic data, to identify the household characteristics associated with this cross-subsidization in a high-solar setting. We find that households in areas with low house prices and high levels of renters are the net funders of this implicit subsidy. These households currently have the lowest average energy cost for retailers to service, and could be the greatest immediate beneficiaries if real-time retail tariffs are made available, before accounting for price-responsiveness. Finally, we present evidence that cross-subsidy magnitudes have grown significantly in recent years, coincident with rapid solar generator penetration.

Keywords: Real-time pricing; Cross-subsidies; Tariff design; Clean energy transition; Energy demand (search for similar items in EconPapers)
JEL-codes: D12 D18 H23 L94 Q41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:127:y:2024:i:c:s0095069624001141

DOI: 10.1016/j.jeem.2024.103040

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