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Dynamic electricity tariffs: Designing reasonable pricing schemes for private households

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  • Freier, Julia
  • von Loessl, Victor

Abstract

As a central mechanism for promoting demand-side management, dynamic electricity tariffs are associated with several advantages. By balancing supply and demand, they not only limit the skyrocketing costs of grid stability, but also support the integration of renewable energy generation in electricity grids and thereby reduce CO2 emissions. Furthermore, dynamic rather than constant electricity unit charges are associated with an increase in overall economic efficiency, due to their capability to reflect time-varying costs of electricity provision. Based on the assumption that households’ adoption of dynamic tariffs is efficiency augmenting, we design and analyze dynamic tariffs that aim to create cost savings sufficient to overcome adoption barriers. Taking into account households’ heterogeneity, we demonstrate that EEX spot market prices are inferior to the forecasted share of renewable energy production and the forecasted residual load as a basis for price signals in terms of typical German households’ monetary savings and CO2 emission reductions. Considering general principles of tariff design, we analyze the average short-term price spread as the key tariff characteristic.

Suggested Citation

  • Freier, Julia & von Loessl, Victor, 2022. "Dynamic electricity tariffs: Designing reasonable pricing schemes for private households," Energy Economics, Elsevier, vol. 112(C).
    • Handle: RePEc:eee:eneeco:v:112:y:2022:i:c:s0140988322003012
    DOI: 10.1016/j.eneco.2022.106146
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    More about this item

    Keywords

    Dynamic electricity tariffs; Real-time pricing; Tariff design; Average short-term price spread; CO2 emission reduction;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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