Electricity pricing

Electricity pricing (sometimes referred to as electricity tariff or the price of electricity) varies widely from country to country, and may vary significantly from locality to locality within a particular country. There are many reasons that account for these differences in price. The price of power generation depends largely on the type and market price of the fuel used, government subsidies, government and industry regulation, and even local weather patterns.

Basis of electricity rates

Electricity prices vary between countries and can even vary within a single region or distribution network of the same country. In standard regulated monopoly markets, electricity rates typically vary for residential, commercial, and industrial customers. Prices for any single class of electricity customer can also vary by time-of-day or by the capacity or nature of the supply circuit (e.g., 5 kW, 12 kW, 18 kW, 24 kW are typical in some of the large developed countries); for industrial customers, single-phase vs. 3-phase, etc. If a specific market allows real-time dynamic pricing, a more recent option in limited markets to date typically following the introduction of electronic metering, prices can even vary between times of low and high electricity network demand.

The actual electricity rate (cost per unit of electricity) that a customer pays can often be heavily dependent on customer charges, particularly for small customers (e.g. residential users).^[1]

Price comparison

The table below shows simple comparison of current electricity tariffs in industrialised countries and territories around the world, expressed in US dollars. Whilst useful for comparing world electricity prices at a glance it does not take into account a number of significant factors including fluctuating international exchange rates, a country's individual purchasing power parity, government electricity subsidies or retail discounts that are often available in deregulated electricity markets.^[2]

A comparative list of June 2009 prices for Europe may be found in the European Household Electricity Price Index.^[3]

The price also differs from the source of the electricity. In the U.S. in 2002, the cost of electricity by different sources is listed below: Coal: 1-4 cents; Gas: 2.3-5.0 cents; Oil: 6-8 cents; Wind: 5-7 cents; Nuclear: 6-7 cents; Solar: 25-50 cents. However, electricity costs from renewable sources depend highly on the source availability, reaching the so-called grid parity in parts of the world where even conventional power plants based on fossil fuel are costly enough (i.e. transportation costs of diesel to isolated communities).

It is worth noting that the high cost of electricity in the Solomon Islands, as shown in the table below, is primarily a result of the use of imported diesel fuel as the main source of fuel for electricity generators.^[4]

Global electricity price comparison

* Denotes countries with government subsidized electricity tariffs.^[24][25][26]

** Mexico has subsidized electricity tariffs according consumption limits, more than 500kWh consumed bimonthly meet no subsidies. This tariff correspond to less expensive "tariff 1" (less than 150kWh).^[27]

*** Hawaii.

**** Prices don't include VAT (20%).

***** Prices to consumers are often much higher because municipalities add a significant markup.

The U.S. Energy Information Administration (EIA) also publishes an incomplete list of international energy prices, while the International Energy Agency (IEA) provides a thorough, quarterly review for purchase.

Forecasting

Electricity price forecasting is simply the process of using mathematical models to predict what electricity prices will be in the future.

Forecasting methodology

The simplest model for day ahead forecasting is to ask each generation source to bid on blocks of generation and choose the cheapest bids. If not enough bids are submitted, the price is increased. If too many bids are submitted the price can reach zero or become negative. The offer price includes the generation cost as well as the transmission cost along with any profit. Power can also be sold or purchased from adjoining power pools.^[28][29][30]

Wind power and solar power, being non-dispatchable, is normally taken before any other bids, and at a pre-determined rate for each supplier. Any excess is sold to another grid operator, or stored, using pumped-storage hydroelectricity, or in the worst case, curtailed.^[31] The HVDC Cross-Channel line between England and France is bidirectional, but is normally used to capacity to purchase power from France. Allocation is done by bidding.^[32]

Driving factors

In addition to the basic production cost of electricity, electricity prices are set by supply and demand.^[33] Everything from salmon migration to forest fires can affect current and future power prices.^{[citation needed]} However, when forecasting those prices there are some fundamental drivers that are the most likely to be considered.^{[citation needed]}

Weather driven demand

Studies show that generally demand for electricity is driven largely by temperature. Heating demand in the winter and cooling demand (air conditioners) in the summer are what primarily drive the seasonal peaks around the year in most regions. Heating degree days and cooling degree days help measure energy consumption by referencing the outdoor temperature above and below 65 degrees Fahrenheit, a commonly accepted baseline.^[34]

Hydropower availability

Snowpack, streamflows, seasonality, salmon, etc. all affect the amount of water that can flow through a dam at any given time. Forecasting these variables allows one to predict the available potential energy for a dam for a given period.^[35] Some regions such as the Pacific Northwest get a large percentage of their generation from hydro-electric dams.

Power plant and transmission outages

Whether planned or unplanned, outages affect the total amount of power that is available to the grid.^{[citation needed]}

Fuel prices

The fuel used to generate electricity at a power plant is the primary cost incurred by electrical generation companies. Particularly, coal, as a fuel for baseload plants and more important, to a degree, natural gas for peaking plants affect power prices.^[36] This will change as more renewable energy is used, when the capital cost will be the primary cost, as renewable energy (other than biomass and biofuel) has no fuel cost.

Economic health

During times of economic hardship, many factories will cut back their production due to a reduction of consumer demand and therefore reduce production-related electrical demand.^[37]

See also

• Cost of electricity by source
• Energy price
• Feed-in tariff
• Stranded costs
• Levelised energy cost
• Electricity market
• Electricity liberalization
• Demand response
• Spark spread

References