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Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply

Author

Listed:
  • Christian Gambardella

    (Potsdam Institute for Climate Impact Research)

  • Michael Pahle

    (Potsdam Institute for Climate Impact Research)

  • Wolf-Peter Schill

    (German Institute for Economic Research (DIW Berlin))

Abstract

We analyze the gross welfare gains from real-time retail pricing in electricity markets where carbon taxation induces investment in variable renewable technologies. Applying a stylized numerical electricity market model, we find a U-shaped association between carbon taxation and gross welfare gains. The benefits of introducing real-time pricing can accordingly be relatively low at relatively high carbon taxes and vice versa. The non-monotonous change in welfare gains can be explained by corresponding changes in the inefficiency arising from “under-consumption” during low-price periods rather than by changes in wholesale price volatility. Our results may cast doubt on the efficiency of ongoing roll-outs of advanced meters in many electricity markets, since net benefits might only materialize at relatively high carbon tax levels and renewable supply shares.

Suggested Citation

  • Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2020. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(1), pages 183-213, January.
    • Handle: RePEc:kap:enreec:v:75:y:2020:i:1:d:10.1007_s10640-019-00393-0
    DOI: 10.1007/s10640-019-00393-0
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    Cited by:

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    2. Lu-Miao Li & Peng Zhou & Wen Wen, 2023. "Distributed Renewable Energy Investment: The Effect of Time-of-Use Pricing," The Energy Journal, , vol. 44(5), pages 251-276, September.
    3. Lu-Miao Li, Peng Zhou, and Wen Wen, 2023. "Distributed Renewable Energy Investment: The Effect of Time-of-Use Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    4. Alexander Haupt, 2023. "Environmental Policy and Renewable Energy in an Imperfectly Competitive Market," CESifo Working Paper Series 10524, CESifo.
    5. Haas, Reinhard & Duic, Neven & Auer, Hans & Ajanovic, Amela & Ramsebner, Jasmine & Knapek, Jaroslav & Zwickl-Bernhard, Sebastian, 2023. "The photovoltaic revolution is on: How it will change the electricity system in a lasting way," Energy, Elsevier, vol. 265(C).

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    More about this item

    Keywords

    Real-time pricing; Variable renewable electricity; Carbon tax; Welfare analysis; Partial equilibrium modeling;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D10 - Microeconomics - - Household Behavior - - - General
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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