Major Reforms in Electricity Pricing: Evidence from a Quasi-Experiment. Issue 644 (22nd September 2021)

• Record Type: Journal Article
• Authors: Labandeira, Xavier; Labeaga, José M; Teixidó, Jordi J
• Is Part Of: Economic journal. Volume 132:Issue 644(2022)
• Page Start: 1517
• Page End: 1541
• Publication Date: 2021-09-22
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1093/ej/ueab076
• Languages: English
• ISSNs: 0013-0133

Abstract

Abstract: The global energy mix and cost structure of the power industry are experiencing a redefinition. Many countries are revamping electricity-pricing systems to guarantee fixed-cost recovery, often by raising the fixed charge of two-part tariff schemes. However, a key assumption of two-part tariff schemes and associated fixed-cost recoveries is that consumers discriminate fixed from marginal costs. We conduct a quasi-experiment with data from a major electricity price reform recently implemented in Spain and find robust evidence indicating that consumers fail to distinguish between fixed and marginal costs. As a result, policymakers are not achieving the goal of cost recovery.