Electricity pricing is the main economic instrument used to charge for residential
electricity and to manage its consumption. A regulated price in general cannot reflect
the true value of electricity. However, a market-based electricity-pricing scheme for
residential electricity is efficient while it is also criticized due to its unaffordability to
the poor. This article empirically compares four electricity-pricing schemes, namely,
increasing-block pricing (IBP), floating increasing-block pricing (FIBP), free market
pricing (FMP), and a price-cum-trade incentive system (PTS), in terms of the aspects
of efficiency, equity, and cost recovery by using electricity-related data for Taiwan.
The research results show that IBP and FIBP suffer from the same problem in that it is
hard to be cost-neutral, and FMP is economically efficient while preferring utility to
the households. PTS performs the best, in that it can be economically efficient, as well
as cost-neutral, and it can also improve income distribution.
Relation:
Western Economic Association International 91st Annual Conference
