The Increasing Cost of Ignoring Coase: Inefficient Electricity Tariffs, Welfare Loss and Distributed Energy Resources

Abstract

I show that British electricity tariffs create substantial welfare loss, equivalent to between six and eighteen percent of domestic consumption value. Losses are greater than unpriced distributional and environmental counter effects. Expected technological change will increase this welfare loss. Deployment of distributed energy resources (e.g. solar) benefits adoptees at the expense of non-adoptees as tariffs are recalibrated to recover fixed costs. Reform on Coasian principles avoids these welfare losses and re-distributional effects. In providing these estimates, I combine household-level micro-data with information on utility cost and tariff structure to simulate the welfare effects of tariff reform and technological change.