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Rate design: the necessary evolution

image credit: Rafael Herzberg
Rafael Herzberg's picture
Consultant energy affairs Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

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  • Aug 28, 2021
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Rate design: the necessary evolution

The supply of electricity in Brazil is a USD 30 Billion/year business (net of taxes).

If we refer this value to the volume of energy delivered, it comes to USD 100/MWh. This includes the commodity and wire fees.

I'm going to "adventure" on another metric, associated to the maximum demand in Brazil. It would be USD 30/kW/month.

Two neighboring houses, with four residents each, have the same monthly energy consumption of 700 kWh. One of them has traditional electric (instant) showers and the other a central heater ("boiler").

Both pay the same amount for the monthly electricity bill of USD 100 (net of taxes), BUT...one demands 9 kW and the other 2 kW. For the same average of 1 kWh/h over the month.

If the billings reflected the capacity that homes demand from the public grid (as I am proposing) one of the bills would be 9 kW x USD 30/kW = USD 270 and the other 2 kW x USD 30/kW = USD 60.

My suggestion is migrating the pricing structure to reflect reality (by demand) and not this average (by consumption). Thus, there would be a natural stimulus to seek efficiency in energy use.

In this above example, the "boiler" neighbor would save 36%. If the showers neighbor installs a boiler it would see its bill reduced by USD 210/month, enabling the return on investment in just a few months.

And the best: everyone would win. Brazil, with the same installed capacity, could serve a larger market without additional investments (USD 3 Billion/GW). And...consumers would pay according to their own efficiencies.

If you would like to consider this vision, which are applicable universally (the rate structures are the same around the globe) make sure to get in touch!

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Thank Rafael for the Post!
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