Pricing and tariff setting

In an unbundled energy industry each activity should be priced separately

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Michael Bonacquisti Michael Bonacquisti
Consultant - Competitive Energy
Pricing and tariff setting

The principal objective of the pricing system is to communicate information regarding the cost of the service provided by each activity. Production and supply are competitive services and may be deregulated such as: the European Union, some states in the USA, several countries in South America and Australia. In contrast transmission and distribution charges remain largely regulated in all countries which have unbundled their energy industries.

The individual technical and economic characteristics of the energy activities require different approaches and models for their pricing. Whilst generation and supply charges should incorporate a substantial variable component associated with fuel costs, network charges need to cover largely fixed capital costs. The charges can be differentiated by time, location or voltage level of connection, or customer groups. In general efficiency and cost recovery are key objectives in energy pricing but must be balanced against supplementary objectives: non-discrimination against service users; simplicity in implementation; transparency to users; stability to support long-term investment decisions and flexibility to support changing market environments.

We support regulators and industry to design and implement efficient and functional pricing regimes. Our services cover the full range of conceptual development, quantitative modeling and practical implementation of tariff models for:

  • networks including postage-stamp and locational charges
  • network constraints and interconnections
  • regulated and competitive production and wholesale activities
  • ancillary and system services
  • retail supply activities.