A Reasonable Price for Electricity

Abstract

Over the past decade, consumers' electricity costs have risen disproportionally compared with the average inflation rate, mostly as the result of increased network tariffs and taxes. This development appears to be at odds with the stated purpose of introducing competition into the electricity sector through implementation of the EU Electricity Directive to realize benefits for end users in terms of lower prices as well as better quality of goods and services. This article discusses the conditions under which the price of electricity can be considered reasonable according to the Directive. The meaning of the term Breasonable^may depend on a number of factors, and it is necessary to distinguish between the various components of an energy bill. The various objectives of the directive could lead to diverging interpretations, even when applied to the same component of the bill, the supply price. According to the underlying market principle, reasonable may imply Beconomically efficient.^However, in line with the principle of universal service for households, reasonable should be understood to mean Baffordable.^The article also examines the conditions under which a substantial rise of consumer energy costs due to increasing network tariffs can be justified. The focus of this article is on electricity, although, as stipulated under the Third Gas Directive, a consumer's right to pay a reasonable price, while enjoying universal service, applies equally to gas. Therefore, the observations outlined in this paper are relevant also for gas consumers.

Combined electricity pricing model taking into account the “green tariff” and traditional factors

“…In order to compensate for the variability of demand in the energy market, a dynamic pricing mechanism has been proposed that stimulates consumers [7]. The issue of formation of reasonable prices for final consumers of electricity in competitive conditions was investigated and mathematical principles of modeling in the energy sector were proposed taking into account global trends in modeling of energy processes [8,9,10]. In particular, in article [9], static and dynamic models for calculating prices from various alternative sources of electricity are presented taking into account the economic indicators of a closed macroeconomic system, and transient processes are studied taking into account maintaining the balance of the macroeconomic system.…”

Effective Paths for Consumer Empowerment and Protection in Retail Energy Markets

“…Energy is essential to our everyday lives. It is a homogenous product, which, in light of its importance, must be priced at affordable levels (Bartl 2010;Deller and Waddams 2015;Pront van Bommel 2016). Energy markets may present high levels of concentration, vertically integrated firms and problems with access to distribution infrastructure, which can affect the levels of competition.…”

Radical Prosumer Innovations in the Electricity Sector and the Impact on Prosumer Regulation

“…Distributed generation increases energy efficiency since electricity lost in the grid is reduced because the location of the generation facilities and the location of energy consumption are closer. Nonetheless, the growth of distributed generation is also connected to increasing costs for the network, mostly due to increased network tariffs and taxes (financing the production of renewable energy), which translates into a raising of consumers' electricity bills [18]. Furthermore, the increasing number of solar PV feeding energy into the grid and the increasing number of electric vehicle charging units demanding electricity during peak times complicate the control and operation schemes of the DSOs, as there may be more local imbalances and local congestions that need to be solved [19].…”

“…There is not a prohibition in the regulatory framework that prevents dynamic network tariffs, however they are still not being applied [1] (p. 100). The reason may be that they are complex, as well as dynamic pricing is not a panacea since it can also have socially adverse redistribution effects, for instance for vulnerable consumers with less flexible consumption patterns or less access to flexibility sources [18,30]. In addition, the creation of more individualized data by smart meters raises questions about their treatment [31].…”