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Electricity Network Tariff Architectures: A Comparison of Four OECD Countries

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  • Vivek Sakhrani
  • John E. Parsons
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    Abstract

    The study is motivated by the question “what is the optimal tariff design?” While we do not offer an answer to this question, we use the different designs in four select countries to illuminate the issues involved in designing electricity network tariffs. Electricity networks are a resource shared by all network users. A tariff design that is clear to network users and well understood by them can help them make efficient decisions. A design that sets up conflicting or perverse incentives results in economic distortions. We find that there are a variety of choices and trade-offs while designing the electricity network tariffs for any electricity system. The tariff design must not only be influenced by the technical and economic characteristics of the system, but also the secondary policy objectives that policy makers wish to achieve, while allowing network companies to recover the costs of building and maintaining the network.

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    Bibliographic Info

    Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 1008.

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    Date of creation: Jul 2010
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    Handle: RePEc:mee:wpaper:1008

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