Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing Under Carbon-Tax-Induced Variable Renewable Energy Supply

46 Pages Posted: 18 Nov 2016

See all articles by Christian Gambardella

Christian Gambardella

Potsdam-Institut für Klimafolgenforschung (PIK)

Michael Pahle

Potsdam Institute for Climate Impact Research (PIK)

Wolf-Peter Schill

DIW Berlin - Department of Energy, Transportation, Environment

Date Written: November 2016

Abstract

Common intuition holds that retail real-time pricing (RTP) of electricity demand should become more beneficial in markets with high variable renewable energy (VRE) supply mainly due to increased price volatility. Using German market data, we test this intuition by simulating long-run electricity market equilibria with carbon-tax-induced VRE investment and real-time price responsive and nonresponsive consumption behavior. We find that the potential welfare gains from RTP are only partially explained by price volatility and are rather driven by opposing wholesale price effects caused by the technology portfolio changes from carbon taxation. Consequently, annual benefits from RTP actually change nonmonotonously with the carbon tax level, implying that increasing RTP at relatively high VRE shares can be both less and much more beneficial than without VRE supply. Nonetheless, as zero marginal cost supply becomes abundant with VRE entry, allocative efficiency increasingly depends on exposing more and more consumers to RTP.

Keywords: Real-time pricing, electricity, variable renewables, carbon taxation, welfare analysis, partial equilibrium modeling

Suggested Citation

Gambardella, Christian and Pahle, Michael and Schill, Wolf-Peter, Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing Under Carbon-Tax-Induced Variable Renewable Energy Supply (November 2016). DIW Berlin Discussion Paper No. 1621, Available at SSRN: https://ssrn.com/abstract=2871838 or http://dx.doi.org/10.2139/ssrn.2871838

Christian Gambardella

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

Michael Pahle

Potsdam Institute for Climate Impact Research (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

Wolf-Peter Schill (Contact Author)

DIW Berlin - Department of Energy, Transportation, Environment ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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