How electricity prices vary with consumption

The table shows how the electricity rates per kWh vary with consumption using data from 2019. The index is defined as:

Index = Electricity rates at high levels of electricity consumption (two times higher than the average for a typical household) / Electricity rates at low levels of electricity consumption (two times lower than the average).

When Index = 1, then the per kWh cost is the same at various levels of electricity consumption. Index > 1 means that the cost of electricity is higher at higher levels of consumption and index < 1 means the opposite. For example, the index for Tanzania is 2.11 which means that electricity rates at high levels of consumption are a bit more than two times higher than at lower levels of consumption. The index of 0.80 in Spain means that the rates at high levels of consumption are about 80 percent of the rates at lower levels of consumption. In other words, the cost per kWh in Spain declines with consumption.

The table shows that many lower income countries have lower rates for low consumption than for high consumption. The goal of that policy is to provide affordable electricity rates to poorer households, where electricity consumption is relatively small. There is a social policy objective in the structure of prices.

Most advanced economies have lower electricity rates at high levels of consumption (index < 1). In those countries, a large part of the electricity bill is a fixed monthly charge that covers expenses for the electricity distribution grid. At higher levels of consumption, that fixed monthly cost is spread over more kWh's which lowers the cost per kWh. Of course, this does not seem like an appropriate cost structure if a country wants to pursue environmental objectives as many of those countries claim to do. A cost structure that is more similar to that of the less developed countries, where the cost of energy increases with its use, may work better to curb energy consumption.



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