Retail Pricing in Colombia to Support the Efficient Deployment of Distributed Generation and Electric Stoves


Electricity tariff reform is an essential part of the clean energy transition. Existing tariffs encourage the over-adoption of residential solar systems and the under-adoption of electric alternatives to fossil fuels. However, an efficient tariff based on fixed charges and marginal cost pricing may harm low-income households. We propose an alternative methodology for setting fixed charges based on each household’s willingness to pay to consume electricity at marginal cost. Using household-level data from Colombia, we demonstrate the short-run and long-run distortions from the existing tariffs and how our new methodology could provide the economic, environmental, and health benefits from adopting clean energy technologies while still protecting low-income households from higher bills.

Journal of Environmental Economics and Management, 102541