ELECTRICITY CONSUMER PRICING METHODS IN COMPETITIVE MARKETS

Abstract

Because of new trends (such as market liberalization, creation of new regulatory measures and other) that have been noticed in recent years, an increasing attention is paid to the retail electricity market and price formation in it. This article deals with the pricing methods applied for consumer price setting. Some advantages and disadvantages of these methods are presented. The global experience of price setting indicates that usually electricity prices are set using cost based methods, although some consumer-demand and competition based aspects are taken into account. Electricity prices for consumers are differentiated too. In some countries, electricity consumers are allowed to participate in the price setting process, creating opportunities to respond to the frequent price fluctuations. This is achieved by using real-time pricing method. This method shows that prices to consumers fluctuate hourly and prices, with some adjustments made, reflect electricity generation costs. There are some opportunities to hedge bills against electricity price fluctuations. Besides flat rate pricing method can be chosen by households that preferred price certainty. For this reason, the consumer agrees to pay to the supplier a risk premium and signs a contract for a fixed electricity price for a period of 1 or 3 years, or season.