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Journal Article

Do benefits from dynamic tariffing rise? Welfare effects of real-time retail pricing under carbon taxation and variable renewable electricity supply

Authors
/persons/resource/Christian.Gambardella

Gambardella,  Christian
Potsdam Institute for Climate Impact Research;

/persons/resource/Michael.Pahle

Pahle,  Michael
Potsdam Institute for Climate Impact Research;

Schill,  W.-P.
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Citation

Gambardella, C., Pahle, M., Schill, W.-P. (2020): Do benefits from dynamic tariffing rise? Welfare effects of real-time retail pricing under carbon taxation and variable renewable electricity supply. - Environmental and Resource Economics, 75, 1, 183-213.
https://doi.org/10.1007/s10640-019-00393-0


Cite as: https://publications.pik-potsdam.de/pubman/item/item_23700
Abstract
We analyze the gross welfare gains from real-time retail pricing in electricity markets where carbon taxation induces investment in variable renewable technologies. Applying a stylized numerical electricity market model, we find a U-shaped association between carbon taxation and gross welfare gains. The benefits of introducing real-time pricing can accordingly be relatively low at relatively high carbon taxes and vice versa. The non-monotonous change in welfare gains can be explained by corresponding changes in the inefficiency arising from “under-consumption” during low-price periods rather than by changes in wholesale price volatility. Our results may cast doubt on the efficiency of ongoing roll-outs of advanced meters in many electricity markets, since net benefits might only materialize at relatively high carbon tax levels and renewable supply shares.