Electricity Network Tariff Architectures A Comparison of Four OECD Countries

Center for Energy and Environmental Policy Research (CEEPR) No. 10-008

110 Pages Posted: 19 Nov 2010

See all articles by Vivek Sakhrani

Vivek Sakhrani

Massachusetts Institute of Technology (MIT) Engineering Systems Division; CPCS Transcom Inc.

John E. Parsons

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: July 10, 2010

Abstract

The study is motivated by the question “what is the optimal tariff design?” While we do not offer an answer to this question, we use the different designs in four select countries to illuminate the issues involved in designing electricity network tariffs. Electricity networks are a resource shared by all network users. A tariff design that is clear to network users and well understood by them can help them make efficient decisions. A design that sets up conflicting or perverse incentives results in economic distortions. We find that there are a variety of choices and trade-offs while designing the electricity network tariffs for any electricity system. The tariff design must not only be influenced by the technical and economic characteristics of the system, but also the secondary policy objectives that policy makers wish to achieve, while allowing network companies to recover the costs of building and maintaining the network.

Keywords: Network, Electricity, Optimal Tariff, Country Study

JEL Classification: D40, H41, L94, Q40

Suggested Citation

Sakhrani, Vivek and Parsons, John E., Electricity Network Tariff Architectures A Comparison of Four OECD Countries (July 10, 2010). Center for Energy and Environmental Policy Research (CEEPR) No. 10-008, Available at SSRN: https://ssrn.com/abstract=1711198 or http://dx.doi.org/10.2139/ssrn.1711198

Vivek Sakhrani

Massachusetts Institute of Technology (MIT) Engineering Systems Division ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

CPCS Transcom Inc. ( email )

1050 Connecticut Ave NW, Suite 500
Washington, DC 20036
United States

John E. Parsons (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

HOME PAGE: http://www.mit.edu/~jparsons/

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