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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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    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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