Price dispersion in Australian retail electricity markets

Simshauser and Whish-Wilson (2017) examined the restructured Victorian retail electricity market and found it to be efficient as the marginal unit produced was sold at marginal cost. This article extends their analysis of price dispersion by considering the heterogeneous nature of electricity consum...

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Bibliographic Details
Published in:Energy economics 2018-02, Vol.70, p.158-169
Main Authors: Nelson, Tim, McCracken-Hewson, Eleanor, Whish-Wilson, Patrick, Bashir, Stephanie
Format: Article
Language:English
Subjects:
Batteries
Climate change
Climate policy
Consumption
Cost analysis
Customers
Discrimination
Dispersion
Electricity
Electricity consumption
Electricity markets
Electricity pricing
Energy
Energy economics
Energy industry
Energy management systems
Energy policy
Energy storage
Environmental policy
Heterogeneity
Market segmentation
Markets
New technology
Photovoltaic cells
Photovoltaics
Policy making
Price discrimination
Price levels
Pricing policies
Residential energy
Segmentation
Solar cells
Solar power
Storage
Tariffs
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Summary:Simshauser and Whish-Wilson (2017) examined the restructured Victorian retail electricity market and found it to be efficient as the marginal unit produced was sold at marginal cost. This article extends their analysis of price dispersion by considering the heterogeneous nature of electricity consumption when measured by volume sold (kWh). We find that customers on ‘standing offer’ tariffs use 18% less electricity than customers on ‘high discount’ products, indicating the presence of market segmentation and implicit second-degree price discrimination. Climate change policy and the emergence of new technologies such as household solar PV, battery storage and home energy management systems will create further price dispersion in Australian electricity markets due to even greater product heterogeneity. We contend that policy makers will need to facilitate, rather than prevent, both price and tariff structure dispersion with the objective of improving consumer outcomes. •We assess retail electricity markets in Australia.•Utilise the framework of Simshauser and Whish-Wilson (2017).•2nd degree price dispersion is occurring in homogenous products.•New technology and services creating heterogeneous products.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2017.12.026