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Is the clean energy transition making fixed-rate electricity tariffs regressive?

Author

Listed:
  • Leslie, Gordon W.
  • Pourkhanali, Armin
  • Roger, Guillaume

Abstract

Wholesale electricity prices can rapidly change in real-time, yet households usually face fixed-price electricity tariffs. In markets with large amounts of solar electricity generation, households that predominantly import energy in the daytime when wholesale prices are low implicitly cross-subsidize households with energy use that is more weighted to the higher-priced evening. We map substation data on electricity use to demographic data, to identify the household characteristics associated with this cross-subsidization in a high-solar setting. We find that households in areas with low house prices and high levels of renters are the net funders of this implicit subsidy. These households currently have the lowest average energy cost for retailers to service, and could be the greatest immediate beneficiaries if real-time retail tariffs are made available, before accounting for price-responsiveness. Finally, we present evidence that cross-subsidy magnitudes have grown significantly in recent years, coincident with rapid solar generator penetration.

Suggested Citation

  • Leslie, Gordon W. & Pourkhanali, Armin & Roger, Guillaume, 2024. "Is the clean energy transition making fixed-rate electricity tariffs regressive?," Journal of Environmental Economics and Management, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:jeeman:v:127:y:2024:i:c:s0095069624001141
    DOI: 10.1016/j.jeem.2024.103040
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    More about this item

    Keywords

    Real-time pricing; Cross-subsidies; Tariff design; Clean energy transition; Energy demand;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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

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