Major Reforms in Electricity Pricing: Evidence from a Quasiexperiment

Abstract

The global energy mix is being redefined, and with it the power industry’s cost structure. In many countries, electricity-pricing systems are being revamped so as to guarantee fixed-cost recovery, often by raising the fixed charge of two-part tariff (TPT) schemes. However, consumer misperception of TPTs threatens to undermine the policy’s outcome and puts the sector’s much-needed transformation in jeopardy. We conduct a quasi-experiment with data from a major electricity price reform recently implemented in Spain and find robust evidence that consumers are failing to distinguish between fixed and marginal costs. As a result, the policy goal of cost recovery is not being achieved