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The economic consequences of electricity tariff design in a renewable energy era

Mohammad Ansarin, Yashar Ghiassi-Farrokhfal, Wolfgang Ketter and John Collins

Applied Energy, 2020, vol. 275, issue C, No S0306261920308291

Abstract: Renewable generation is rapidly expanding across many electricity grids, often as distributed renewable energy sources (D-RES). D-RES, such as rooftop solar panels, change a household’s electric relationship with the external grid, demanding a likewise change in its economic relationship with the retailer. In particular, D-RES can impact fairness and economic efficiency considerations for electricity tariffs. We evaluate this impact on 5 tariffs, using per-minute data for 144 households in Austin, TX, USA. Our results show that traditional tariff designs allow for large wealth transfers, often to D-RES owners from non-owners, who may be paying on the median 22% more than their fair share. For economic efficiency, traditional tariffs again perform poorly. Newer time-based (time-of-use, or TOU, and real-time dynamic pricing) tariffs show few signs of cross-subsidization and better economic efficiency. Potential demand elasticity does not significantly alter conclusions for fairness, but significantly impacts those for economic efficiency. Our results clarify how different novel tariff designs in the renewable energy era achieve differing kinds and levels of fairness and efficiency; some acceptable, while others less so.

Keywords: Renewable energy; Electricity tariffs; Cross-subsidies; Economic efficiency (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.apenergy.2020.115317

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