Electricity grid tariffs for electrification in households: Bridging the gap between cross-subsidies and fairness

Claire-Marie Bergaentzl\'e, Philipp Andreas Gunkel, Mohammad Ansarin, Yashar Ghiassi-Farrokhfal and Henrik Klinge Jacobsen
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Claire-Marie Bergaentzl\'e: DTU Management, Technical University of Denmark, 2800 Kgs Lyngby, Denmark
Philipp Andreas Gunkel: DTU Management, Technical University of Denmark, 2800 Kgs Lyngby, Denmark
Mohammad Ansarin: Rotterdam School of Management, Erasmus University, 3062PA Rotterdam, Netherlands
Yashar Ghiassi-Farrokhfal: Rotterdam School of Management, Erasmus University, 3062PA Rotterdam, Netherlands

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Abstract: Developing new electricity grid tariffs in the context of household electrification raises old questions about who pays for what and to what extent. When electric vehicles (EVs) and heat pumps (HPs) are owned primarily by households with higher financial status than others, new tariff designs may clash with the economic argument for efficiency and the political arguments for fairness. This article combines tariff design and redistributive mechanisms to strike a balance between time-differentiated signals, revenue stability for the utility, limited grid costs for vulnerable households, and promoting electrification. We simulate the impacts of this combination on 1.4 million Danish households (about 50% of the country's population) and quantify the cross-subsidization effects between groups. With its unique level of detail, this study stresses the spillover effects of tariffs. We show that a subscription-heavy tariff associated with a ToU rate and a low redistribution factor tackles all the above goals.

Date: 2022-10
New Economics Papers: this item is included in nep-ene and nep-reg
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