The Increasing Cost of Ignoring Coase: Inefficient Electricity Tariffs, Welfare Loss and Distributed Energy Resources

63 Pages Posted: 17 Dec 2018

See all articles by Niall Farrell

Niall Farrell

Potsdam-Institut für Klimafolgenforschung (PIK)

Date Written: November 27, 2018

Abstract

I show that British electricity tariffs create substantial welfare loss, equivalent to between six and eighteen percent of domestic consumption value. Losses are greater than unpriced distributional and environmental counter effects. Expected technological change will increase this welfare loss. Deployment of distributed energy resources (e.g. solar) benefits adoptees at the expense of non-adoptees as tariffs are recalibrated to recover fixed costs. Reform on Coasian principles avoids these welfare losses and re-distributional effects. In providing these estimates, I combine household-level micro-data with information on utility cost and tariff structure to simulate the welfare effects of tariff reform and technological change.

Keywords: Electricity Tariffs, Distortion, Welfare Loss, Distributed Energy Resources, Distributional Impacts

JEL Classification: K32, L94, L98, Q42, Q48, Q51, Q53, Q54, Q55

Suggested Citation

Farrell, Niall, The Increasing Cost of Ignoring Coase: Inefficient Electricity Tariffs, Welfare Loss and Distributed Energy Resources (November 27, 2018). Available at SSRN: https://ssrn.com/abstract=3291506 or http://dx.doi.org/10.2139/ssrn.3291506

Niall Farrell (Contact Author)

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

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