electricity pricing

In standard regulated monopoly markets like the United States, there are multilevel governance structures that set electricity rates. The rates are determined through a regulatory process that is overseen by governmental organizations.

The inclusion of renewable energy distributed generation (DG) and advanced metering infrastructure (AMI or smart meter) in the modern electricity grid has introduced many alternative rate structures.{{cite journal |last1=Zheng |first1=Junjie |last2=Lai |first2=Chun Sing |last3=Yuan |first3=Haoliang |last4=Dong |first4=Zhao Yang |last5=Meng |first5=Ke |last6=Lai |first6=Loi Lei |title=Electricity plan recommender system with electrical instruction-based recovery |journal=Energy |date=July 2020 |volume=203 |pages=117775 |doi=10.1016/j.energy.2020.117775|bibcode=2020Ene...20317775Z |s2cid=219466165 |url=http://bura.brunel.ac.uk/handle/2438/20879 }} There are several methods that modern utilities structure residential rates:

• Simple (or fixed) – the rate at which customers pay a flat rate per kWh
• Tiered (or step) – rate changes with the amount of use (some go up to encourage energy conservation, others go down to encourage use and electricity provider profit)
• Time of use (TOU) – different rate depending on the time of day
• Demand rates – based on the peak demand for electricity a consumer uses
• Tiered within TOU – different rates depending on how much they use at a specific time of day
• Seasonal rates – charged for those that do not use their facilities year-round (e.g. a cottage)
• Weekend/holiday rates – generally different rates than during normal times. among the few residential rate structures offered by modern utilities.

The simple rate charges a specific dollar per kilowatt hour ($/kWh) consumed. The tiered rate is one of the more common residential rate programs. The tiered rate charges a higher rate as customer usage increases. TOU and demand rates are structured to help maintain and control a utility's peak demand.{{Cite web|url= https://www.routledge.com/Appraising-the-Economics-of-Smart-Meters-Costs-and-Benefits/Torriti/p/book/9780367203368|title= Appraising the Economics of Smart Meters|last=Torriti|first=Jacopo}} The concept at its core is to discourage customers from contributing to peak-load times by charging them more money to use power at that time. Historically, rates have been minimal at night because the peak is during the day when all sectors are using electricity. Increased demand requires additional energy generation, which is traditionally provided by less efficient "peaker" plants that cost more to generate electricity than "baseload" plants.{{cite web |last1=Fetchen |first1=Stephanie |title=Growing Renewable Generation Causing Changes In Generation Charges |url=http://rateacuity.com/growing-renewable-generation-causing-changes-in-generation-charges/ |website=RateAcuity |access-date=15 October 2019|date=12 September 2019 }} However, as greater penetration from renewable energy sources, like solar, are on a grid the lower cost, electricity is shifted to midday when solar generates the most energy. Time of use (TOU) tariffs can shift electricity consumption out of peak periods, thus helping the grid cope with variable renewable energy.{{cite web |url=https://www.sms-plc.com/insights/blogs-news/smart-time-of-use-tariff-shows-significant-impact-on-energy-consumption-behaviour/|title=Smart time-of-use tariff shows "significant impact" on energy consumption behaviour |date=31 October 2018 |website=SMS plc |access-date=20 September 2021}}{{Cite web |title=Electricity Retail Rate Design in a Decarbonizing Economy: An Analysis of Time-of-Use and Critical Peak Pricing - |url=https://ceepr.mit.edu/workingpaper/electricity-retail-rate-design-in-a-decarbonizing-economy-an-analysis-of-time-of-use-and-critical-peak-pricing/ |access-date=2023-09-21 |website=CEEPR |language=en-US}}

A feed-in tariff (FIT){{Cite journal|last1=Couture|first1=T. D.|last2=Cory|first2=K.|last3=Kreycik|first3=C.|last4=Williams|first4=E.|date=1 July 2010|title=Policymaker's Guide to Feed-in Tariff Policy Design|journal=UNT|doi=10.2172/984987 |language=en|osti=984987|url=https://digital.library.unt.edu/ark:/67531/metadc1013465/ |doi-access=free}} is an energy-supply policy that supports the development of renewable power generation. FITs give financial benefits to renewable power producers. In the United States, FIT policies guarantee that eligible renewable generators will have their electricity purchased by their utility.{{Cite web|url=https://www.energy.gov/eere/slsc/feed-tariff-resources|title=Feed-in Tariff Resources {{!}} Department of Energy|website=www.energy.gov|language=en|access-date=3 May 2018|archive-url=https://web.archive.org/web/20180504103558/https://www.energy.gov/eere/slsc/feed-tariff-resources|archive-date=4 May 2018|url-status=dead}} The FIT contract contains a guaranteed period of time (usually 15–20 years) that payments in dollars per kilowatt hour ($/kWh) will be made for the full output of the system.

Net metering is another billing mechanism that supports the development of renewable power generation, specifically, solar power. The mechanism credits solar energy system owners for the electricity their system adds to the grid. Residential customers with rooftop photovoltaic (PV) systems will typically generate more electricity than their home consumes during daylight hours, so net metering is particularly advantageous. During this time where generation is greater than consumption, the home's electricity meter will run backward to provide a credit on the homeowner's electricity bill.{{Cite web|url=https://www.seia.org/initiatives/net-metering|title=Net Metering {{!}} SEIA|website=SEIA|language=en|access-date=3 May 2018}} The value of solar electricity is less than the retail rate, so net metering customers are actually subsidized by all other customers of the electric utility.Rethinking The rationale for Net Metering: Quantifying subsidy from non-solar to solar customers. Alexander, Brown, and Faruqui. http://ipu.msu.edu/wp-content/uploads/2017/09/Rethinking-Rationale-for-Net-Metering-2016.pdf

United States: the Federal Energy Regulatory Commission (FERC) oversees the wholesale electricity market along with the interstate transmission of electricity. Public Service Commissions (PSC), which are also known as Public utilities commission (PUC), regulate utility rates within each state.

{{Main|Cost of electricity by source}}

The cost of electricity also differs by the power source. The net present value of the unit-cost of electricity over the lifetime of a generating asset is known as the levelized cost of electricity (LCOE). However, LCOE does not account for the system costs, in particular related to the guarantee of grid stability and power quality, which can represent a significant part of the final price of power. LCOE is therefore largely insufficient when comparing the costs of different power sources.

The generating source mix of a particular utility will thus have a substantial effect on their electricity pricing. Electric utilities that have a high percentage of hydroelectricity will tend to have lower prices, while those with a large amount of older coal-fired power plants will have higher electricity prices. Recently the LCOE of solar photovoltaic technology{{cite journal |doi=10.1016/j.rser.2011.07.104 |title=A review of solar photovoltaic levelized cost of electricity |journal=Renewable and Sustainable Energy Reviews |volume=15 |issue=9 |pages=4470–4482 |year=2011 |last1=Branker |first1=K. |last2=Pathak |first2=M.J.M. |last3=Pearce |first3=J.M. |bibcode=2011RSERv..15.4470B |s2cid=73523633 |url=https://digitalcommons.mtu.edu/cgi/viewcontent.cgi?article=1028&context=materials_fp |hdl=1974/6879 |hdl-access=free }} has dropped substantially.{{cite journal |doi=10.1016/j.apenergy.2016.12.153 |title=Levelized cost of electricity for solar photovoltaic and electrical energy storage |journal=Applied Energy |volume=190 |pages=191–203 |year=2017 |last1=Lai |first1=Chun Sing |last2=McCulloch |first2=Malcolm D. |bibcode=2017ApEn..190..191L |s2cid=113623853 |url=http://bura.brunel.ac.uk/handle/2438/22670 }}{{cite journal |doi=10.1016/j.solmat.2016.04.046 |title=Quantitative analysis of the levelized cost of electricity of commercial scale photovoltaics systems in the US |journal=Solar Energy Materials and Solar Cells |volume=154 |pages=71–77 |year=2016 |last1=Kang |first1=Moon Hee |last2=Rohatgi |first2=Ajeet |bibcode=2016SEMSC.154...71K }} In the United States, 70% of current coal-fired power plants run at a higher cost than new renewable energy technologies (excluding hydro) and by 2030 all of them will be uneconomic.{{Cite web|url=https://www.carbontracker.org/42-of-global-coal-power-plants-run-at-a-loss-finds-world-first-study/|title=42% of global coal power plants run at a loss, finds world-first study|date=30 November 2018|website=Carbon Tracker Initiative|language=en-US|access-date=14 March 2019}} In the rest of the world 42% of coal-fired power plants were operating at a loss in 2019.

{{Excerpt|Electricity price forecasting}}

Excessive Total Harmonic Distortions (THD) and low power factor are costly at every level of the electricity market. The impact of THD is difficult to estimate, but it can potentially cause heat, vibrations, malfunctioning and even meltdowns. The power factor is the ratio of real to apparent power in a power system. Drawing more current results in a lower power factor. Larger currents require costlier infrastructure to minimize power loss, so consumers with low power factors get charged a higher electricity rate by their utility.{{Cite web|url=https://www.motioncontrolonline.org/content-detail.cfm/Motion-Control-Technical-Features/Understanding-Power-Factor-and-Harmonics/content_id/1545|title=MCMA – Motion Control Online|website=MCMA – Motion Control Online|language=en|access-date=3 May 2018}} Power quality is typically monitored at the transmission level. A spectrum of compensation devices{{cite web|url=http://www.allaboutcircuits.com/vol_2/chpt_11/4.html|title=Practical Power Factor Correction : Power Factor – Electronics Textbook|publisher=All About Circuits|access-date=18 June 2017}} mitigate bad outcomes, but improvements can be achieved only with real-time correction devices (old style switching type,{{cite web|title=High Speed Real Time Automatic Power Factor Correction System|url=http://www.excelelectronics.co.in/pdf/RTPFC.pdf|access-date=18 June 2017|archive-url=https://web.archive.org/web/20160429141947/http://excelelectronics.co.in/pdf/RTPFC.pdf|archive-date=29 April 2016|url-status=dead}} modern low-speed DSP driven{{cite web|url=http://www.transcoil.com/Products/HGA-Active-Harmonic-Filter.htm|title=TCI, LLC – HGA 5% Active Harmonic Filter|publisher=TransCoil|access-date=18 June 2017}} and near real-time{{cite web|url=http://3dfs.com/|title=3DFS Software Defined Power|publisher=3DFS|access-date=18 June 2017}}). Most modern devices reduce problems, while maintaining return on investment and significant reduction of ground currents. Power quality problems can cause erroneous responses from many kinds of analog and digital equipment.

• Cost of electricity by source
• Demand response
• Electricity billing in the UK
• Electricity meter
• Electricity liberalization
• Electricity market
• Energy economics
• Feed-in tariff
• Fixed bill
• Levelised energy cost
• Price controls
• Spark spread
• Stranded costs

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Category:Electricity economics

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