IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v40y2013icp1-7.html
   My bibliography  Save this article

A new approach to congestion pricing in electricity markets: Improving user pays pricing incentives

Author

Listed:
  • Nelson, Tim
  • Orton, Fiona

Abstract

Electricity pricing has traditionally been based on average cost pricing where consumers pay a ‘flat’ tariff based upon the average cost of production and transportation of electricity. The introduction of new ‘smart’ meters allows electricity providers to differentiate tariffs on the basis of time. Utilising congestion pricing theory, the energy industry has embraced ‘time-of-use’ (ToU) tariffs with a view to more efficiently pricing electricity. This paper demonstrates that pricing as a function of demand variability (reflecting capacity utilisation) is a more appropriate alternative to existing ToU tariffs for more efficiently allocating costs to end users. We call this new alternative pricing model ‘first derivative ratio’ FDR pricing. This new approach to congestion pricing could be applied to markets other than electricity, such as road transportation.

Suggested Citation

  • Nelson, Tim & Orton, Fiona, 2013. "A new approach to congestion pricing in electricity markets: Improving user pays pricing incentives," Energy Economics, Elsevier, vol. 40(C), pages 1-7.
    • Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:1-7
    DOI: 10.1016/j.eneco.2013.06.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988313001187
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2013.06.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Honebein, Peter C., 2010. "We Got a New Digital Electric Meter. Our Usage Went Up 123%. Our Bill Went Up 65%," The Electricity Journal, Elsevier, vol. 23(2), pages 76-82, March.
    2. Tim Nelson & Simon Kelley & Fiona Orton & Paul Simshauser, 2010. "Delayed Carbon Policy Certainty and Electricity Prices in Australia," Economic Papers, The Economic Society of Australia, vol. 29(4), pages 446-465, December.
    3. Robin Lindsey, 2006. "Do Economists Reach A Conclusion on Road Pricing? The Intellectual History of an Idea," Econ Journal Watch, Econ Journal Watch, vol. 3(2), pages 292-379, May.
    4. Faruqui, Ahmad & Hledik, Ryan & Sergici, Sanem, 2010. "Piloting the Smart Grid," The Electricity Journal, Elsevier, vol. 22(7), pages 55-69, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dong, Jun & Jiang, Yuzheng & Liu, Dongran & Dou, Xihao & Liu, Yao & Peng, Shicheng, 2022. "Promoting dynamic pricing implementation considering policy incentives and electricity retailers’ behaviors: An evolutionary game model based on prospect theory," Energy Policy, Elsevier, vol. 167(C).
    2. Simshauser, Paul, 2018. "Price discrimination and the modes of failure in deregulated retail electricity markets," Energy Economics, Elsevier, vol. 75(C), pages 54-70.
    3. Paul Simshauser & David Downer, 2016. "On the Inequity of Flat-rate Electricity Tariffs," The Energy Journal, , vol. 37(3), pages 199-230, July.
    4. Simshauser, Paul & Akimov, Alexandr, 2019. "Regulated electricity networks, investment mistakes in retrospect and stranded assets under uncertainty," Energy Economics, Elsevier, vol. 81(C), pages 117-133.
    5. Simshauser, Paul, 2017. "Monopoly regulation, discontinuity & stranded assets," Energy Economics, Elsevier, vol. 66(C), pages 384-398.
    6. Tim Nelson, 2017. "Redesigning a 20th century regulatory framework to deliver 21st century energy technology," Journal of Bioeconomics, Springer, vol. 19(1), pages 147-164, April.
    7. Yang, Changhui & Meng, Chen & Zhou, Kaile, 2018. "Residential electricity pricing in China: The context of price-based demand response," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P2), pages 2870-2878.
    8. Zhou, Kaile & Yang, Shanlin & Shao, Zhen, 2016. "Energy Internet: The business perspective," Applied Energy, Elsevier, vol. 178(C), pages 212-222.
    9. Michael Maphosa, 2018. "The User Pays's Principle and the Electricity Sector: A South African Case," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 51-58.
    10. Simshauser, Paul, 2016. "Distribution network prices and solar PV: Resolving rate instability and wealth transfers through demand tariffs," Energy Economics, Elsevier, vol. 54(C), pages 108-122.
    11. Rajendran, Suchithra & Srinivas, Sharan, 2020. "Air taxi service for urban mobility: A critical review of recent developments, future challenges, and opportunities," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 143(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Blair Jenkins, 2009. "Rent Control: Do Economists Agree?," Econ Journal Watch, Econ Journal Watch, vol. 6(1), pages 73-112, January.
    2. Raymond Markey & Joseph McIvor & Martin O’Brien & Chris F Wright, 2021. "Triggering business responses to climate policy in Australia," Australian Journal of Management, Australian School of Business, vol. 46(2), pages 248-271, May.
    3. Tirachini, Alejandro & Proost, Stef, 2021. "Transport taxes and subsidies in developing countries: The effect of income inequality aversion," Economics of Transportation, Elsevier, vol. 25(C).
    4. Ian W.H. Parry, 2009. "Pricing Urban Congestion," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 461-484, September.
    5. Button, Kenneth, 2020. "The Transition From Pigou’S Ideas On Road Pricing To Their Application," Journal of the History of Economic Thought, Cambridge University Press, vol. 42(3), pages 417-438, September.
    6. Yanshan Yu & Jin Yang & Bin Chen, 2012. "The Smart Grids in China—A Review," Energies, MDPI, vol. 5(5), pages 1-18, May.
    7. Parry, Ian, 2015. "Designing Fiscal Policy to Address the External Costs of Energy," International Review of Environmental and Resource Economics, now publishers, vol. 8(1), pages 1-56, May.
    8. Newbery, D., 2020. "Transport policy for a post-Covid UK," Cambridge Working Papers in Economics 2081, Faculty of Economics, University of Cambridge.
    9. Simshauser, P. & Gilmore, J., 2020. "Is the NEM broken? Policy discontinuity and the 2017-2020 investment megacycle," Cambridge Working Papers in Economics 2048, Faculty of Economics, University of Cambridge.
    10. Simshauser, Paul, 2019. "Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    11. Winston, Clifford & Karpilow, Quentin, 2017. "A New Route to Increasing Economic Growth: Reducing Highway Congestion with Autonomous Vehicles," Working Papers 03323, George Mason University, Mercatus Center.
    12. Chen, Liang & Kettunen, Janne, 2017. "Is certainty in carbon policy better than uncertainty?," European Journal of Operational Research, Elsevier, vol. 258(1), pages 230-243.
    13. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
    14. Haywood, Luke & Koning, Martin, 2015. "The distribution of crowding costs in public transport: New evidence from Paris," Transportation Research Part A: Policy and Practice, Elsevier, vol. 77(C), pages 182-201.
    15. Hall, Jonathan D., 2018. "Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways," Journal of Public Economics, Elsevier, vol. 158(C), pages 113-125.
    16. Nelson, Tim & Kelley, Simon & Orton, Fiona, 2012. "A literature review of economic studies on carbon pricing and Australian wholesale electricity markets," Energy Policy, Elsevier, vol. 49(C), pages 217-224.
    17. Claudio R. Lucinda & Rodrigo Moita, 2019. "The Political Economy of an Optimal Congestion Tax: An Empirical Investigation," Working Papers, Department of Economics 2019_10, University of São Paulo (FEA-USP).
    18. Lou, Yingyan & Yin, Yafeng & Lawphongpanich, Siriphong, 2010. "Robust congestion pricing under boundedly rational user equilibrium," Transportation Research Part B: Methodological, Elsevier, vol. 44(1), pages 15-28, January.
    19. Lindsey, Robin & de Palma, André, 2014. "Cost recovery from congestion tolls with long-run uncertainty," Economics of Transportation, Elsevier, vol. 3(2), pages 119-132.
    20. Nagy, Benedek, 2012. "A repülőtéri zsúfoltságkezelési módszerek hatékonysága [The efficiency of methods to treat crowding in airports]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 74-91.

    More about this item

    Keywords

    Electricity pricing; Time-of-use pricing; Congestion pricing;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:1-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.