Electricity Tariff Design in the Context of an Ambitious Green Transition

Abstract

Current tariff designs do not incentivize efficient or equitable responses by active customers adopting renewable self-generation or providing flexibility in a future fully decarbonized electricity system. This chapter revises current practices in Europe and, based on the revisited principles of efficiency and equity, proposes a first benchmark for tariff design. Forward-looking peak-coincident network charges that reflect network incremental costs and fixed charges that collect residual network costs and policy costs are recommended. No one-size-fits-all model exists, in practice. These are guidelines for regulators when dealing with the trade-offs between the tariff legacy and the new requirements imposed by this energy transition.