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Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply

Author

Listed:
  • Christian Gambardella
  • Michael Pahle
  • Wolf-Peter Schill

Abstract

Common intuition holds that retail real-time pricing (RTP) of electricity demand should become more beneficial in markets with high variable renewable energy (VRE) supply mainly due to increased price volatility. Using German market data, we test this intuition by simulating long-run electricity market equilibria with carbon-tax-induced VRE investment and real-time price responsive and nonresponsive consumption behavior. We find that the potential welfare gains from RTP are only partially explained by price volatility and are rather driven by opposing wholesale price effects caused by the technology portfolio changes from carbon taxation. Consequently, annual benefits from RTP actually change nonmonotonously with the carbon tax level, implying that increasing RTP at relatively high VRE shares can be both less and much more beneficial than without VRE supply. Nonetheless, as zero marginal cost supply becomes abundant with VRE entry, allocative efficiency increasingly depends on exposing more and more consumers to RTP.

Suggested Citation

  • Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1621
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    References listed on IDEAS

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    Cited by:

    1. Mier, Mathias & Weissbart, Christoph, 2020. "Power markets in transition: Decarbonization, energy efficiency, and short-term demand response," Energy Economics, Elsevier, vol. 86(C).
    2. repec:aen:journl:ej37-si3-pahle is not listed on IDEAS
    3. Michael Pahle & Wolf-Peter Schill & Christian Gambardella & Oliver Tietjen, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," The Energy Journal, , vol. 37(3_suppl), pages 147-170, December.
    4. Gambardella, Christian & Pahle, Michael, 2018. "Time-varying electricity pricing and consumer heterogeneity: Welfare and distributional effects with variable renewable supply," Energy Economics, Elsevier, vol. 76(C), pages 257-273.

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