{"id":43394,"date":"2018-11-21T11:00:16","date_gmt":"2018-11-21T11:00:16","guid":{"rendered":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?post_type=publication&p=43394"},"modified":"2024-08-19T14:28:09","modified_gmt":"2024-08-19T13:28:09","slug":"revenue-decoupling-for-electric-utilities-impacts-on-prices-and-welfare","status":"publish","type":"publication","link":"https:\/\/www.lse.ac.uk\/granthaminstitute\/publication\/revenue-decoupling-for-electric-utilities-impacts-on-prices-and-welfare\/","title":{"rendered":"Revenue decoupling for electric utilities: impacts on prices and welfare"},"content":{"rendered":"\n

Particularly in electricity markets, revenue decoupling<\/path><\/svg><\/a> has started to be used as a price adjustment mechanism that disentangles the effect of increased sales volume to a utility’s ability to recover the fixed costs of providing the service to customers. Because of its design, some<\/path><\/svg><\/a> regard this strategy as win-win both for the utility company and for its customers, because it removes the incentive for companies to increase sales as a means of increasing revenue and profits, and it reduces the volatility of customer bills. Because of this, revenue decoupling is viewed as an effective way to remove the disincentive for electricity companies to promote energy efficiency programmes and allow for distributed generation<\/path><\/svg><\/a> (the deployment of small-scale technologies, including renewables, to produce electricity close to the end user).<\/p>\n

However, the recent adoption of revenue decoupling by American states has been controversial due to a perception that there have been significant impacts on customer prices, and that risks to do with uncertainty of power supply have been transferred from utilities to consumers. To provide analysis that could give guidance on the effects of decoupling, the authors of this paper developed a simple model that allows them to assess the welfare implications of revenue decoupling. They investigated the impacts of decoupling on electricity prices and on welfare in each American state.<\/p>\n

Recent technological and economic changes, such as the falling costs of energy-efficient products and distributed generation, are seen to diminish the ability of electric utilities to survive. The authors of this paper find, however, that implementing revenue decoupling in the United States has benefited utility companies at the expense of consumers, particularly those who are failing to improve their energy efficiency or adopt off-grid energy.<\/p>\n

Key points for decision-makers<\/h2>\n