Uniform taxation of electricity: incentives for flexibility and cost redistribution among household categories

Recent European developments have shown a rapid adoption of residential solar PV with increased self-consumption and self-sufficiency levels. A major driver for their economic viability is the electricity tax exemption for the consumption of self-produced electricity. This leads to large residential PV capacities and potentially overburdened distribution grids. Moreover, the tax exemption favoring wealthier households capable of making capital-intensive investments in solar panels has prompted debates regarding energy equity and the suitable taxation level for self-consumption. This study investigates the implementation of uniform electricity taxes on all consumption, irrespective of the origin of the production, by means of a case study of 155,000 hypothetical Danish prosumers. The results show that the new taxation policy redistributes costs dependent on household consumption and their PV usage. As more consumption is taxed, the tax level can be reduced by 38%, leading to 61% of all households seeing net savings of up to 23% off their yearly tax bill. High-occupancy houses save an average of 116 €/year at the expense of single households living in large dwellings who pay 55 €/year more. Implementing a uniform electricity tax in combination with a reduced overall tax level can (a) maintain overall tax revenues and (b) increase the interaction of batteries with the grid while reducing behind-the-meter operations. In the end, the implicit cross-subsidy is removed by taxing self-consumption uniformly, leading to a cost redistribution supporting occupant-dense households and encouraging the grid-side flexibility of prosumers. This policy measure improves economic efficiency and greater use of technology with positive system-wide impacts while redistributing tax contributions by alleviating the regressive tax design.