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

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  • Philipp Andreas Gunkel

    (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark)

  • Febin Kachirayil

    (Chair of Energy Systems Analysis, Institute of Energy and Process Engineering, ETH Zuerich, 8092 Zuerich, Switzerland)

  • Claire-Marie Bergaentzl'e

    (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark)

  • Russell McKenna

    (Chair of Energy Systems Analysis, Institute of Energy and Process Engineering, ETH Zuerich, 8092 Zuerich, Switzerland
    Paul Scherrer Institute, Laboratory for Energy Systems Analysis, Forschungsstrasse 111, 5232 Villigen PSI, Switzerland)

  • Dogan Keles

    (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark)

  • Henrik Klinge Jacobsen

    (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark)

Abstract

Recent years have shown a rapid adoption of residential solar PV with increased self-consumption and self-sufficiency levels in Europe. 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 partially overburdened distribution grids. Furthermore, the tax exemption that benefits wealthy households that can afford capital-intense investments in solar panels in particular has sparked discussions about energy equity and the appropriate 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 progressively across household sizes. 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 Euro per year at the expense of single households living in large dwellings who pay 55 Euro per 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 at the expense of 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 flexible behavior of prosumers. This policy measure improves economic efficiency and greater use of technology with positive system-wide impacts.

Suggested Citation

  • Philipp Andreas Gunkel & Febin Kachirayil & Claire-Marie Bergaentzl'e & Russell McKenna & Dogan Keles & Henrik Klinge Jacobsen, 2023. "Uniform taxation of electricity: incentives for flexibility and cost redistribution among household categories," Papers 2306.11566, arXiv.org.
    • Handle: RePEc:arx:papers:2306.11566
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    References listed on IDEAS

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    Cited by:

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