Puneet Varma (Editor)

Electricity pricing

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Electricity pricing

Electricity pricing (sometimes referred to as electricity tariff or the price of electricity) varies widely from country to country and may vary significantly from locality to locality within a particular country. There are many reasons that account for these differences in price. The price of power generation depends largely on the type and market price of the fuel used, government subsidies, government and industry regulation and local weather patterns.


Rate basis

In standard regulated monopoly markets, electricity rates typically vary for residential, commercial and industrial customers. Prices for any single class of electricity customer can vary by time-of-day or by the capacity or nature of the supply circuit (e.g., 5 kW, 12 kW, 18 kW, 24 kW are typical in some of the large developed countries); for industrial customers, single-phase vs. 3-phase, etc. If a specific market allows real-time dynamic pricing, a more recent option typically following the introduction of electronic metering, prices can even vary between times of low and high electricity demand.

The actual electricity rate (cost per unit of electricity) that a customer pays can be dependent on total usage, particularly for small customers (e.g. residential users).

The cost also differs by the power source. In the U.S. the typical cost of electricity for different sources are: coal (6-14 cents), gas (5-21) including gas peaker plants, wind (3-6 cents), nuclear (10-14 cents), utility scale solar (5-6 cents), roof top solar (9-19 cents). Renewable sources have reached grid parity in parts of the world where conventional power plants based on fossil fuel are costly enough (e.g. transportation cost of diesel to isolated communities).

In many countries, the tariff is considerably lower for high electricity users compared to electricity savers. In Finland the low electricity users in households may pay ca 30% fixed price.

Price comparison

The table below shows simple comparison of 2014 electricity tariffs in industrialised countries and territories around the world, expressed in US dollars. The comparison does not take into account factors including fluctuating international exchange rates, a country's purchasing power, government electricity subsidies or retail discounts that are often available in deregulated electricity markets.

For example, in 2012, Hawaii residents had the highest average residential electricity rate in the United States (37.34¢/kWh), while Louisiana residents had the lowest average residential electricity costs (8.37¢/kWh). Even in the contiguous United States the gap is significant, with New York residents having the highest average residential electricity rates in the lower 48 U.S. states (17.62¢/kWh).

Global comparison

a Denotes countries with government subsidized electricity tariffs.

b Mexico subsidizes electricity according to consumption limits. More than 500kWh consumed bimonthly receive no subsidies. Only 1% of Mexico's population pays this tariff.

c Hawaii.

d Prices don't include VAT (20%)

e San Diego, California high-tier

The U.S. Energy Information Administration (EIA) also publishes an incomplete list of international energy prices, while the International Energy Agency (IEA) provides a thorough, quarterly review.


Electricity price forecasting is the process of using mathematical models to predict what electricity prices will be in the future.

Forecasting methodology

The simplest model for day ahead forecasting is to ask each generation source to bid on blocks of generation and choose the cheapest bids. If not enough bids are submitted, the price is increased. If too many bids are submitted the price can reach zero or become negative. The offer price includes the generation cost as well as the transmission cost, along with any profit. Power can be sold or purchased from adjoining power pools.

Wind and solar power are non-dispatchable. Such power is normally sold before any other bids, at a pre-determined rate for each supplier. Any excess is sold to another grid operator, or stored, using pumped-storage hydroelectricity, or in the worst case, curtailed. The HVDC Cross-Channel line between England and France is bidirectional, but is normally used to purchase power from France. Allocation is done by bidding.

Driving factors

In addition to production costs, electricity prices are set by supply and demand. Everything from salmon migration to forest fires can affect power prices. However, some fundamental drivers are the most likely to be considered.

Power quality

Transmission, production and consuming electrical power associated with excessive Total Harmonic Distortions (THD) and not unity Power Factor (PF) would be costly for owners. Cost of PF and THD impact is difficult to estimate, but it causes heat and vibration, malfunctioning and even meltdowns. The electric company monitors the transmission level. A spectrum of compensation devices mitigate bad outcomes, but improvements can be achieved only with real-time Correction devices (old style switching type, modern low-speed DSP driven and near real-time ). Most modern devices reduce problems, while maintaining return on investment and significant reduction of ground currents. Another reason to mitigate the problems is to reduce operation and generation costs, which is commonly done by Electric Power Distribution companies in conjunction with generation companies. Power quality problems can cause erroneous responses from many kinds of analog and digital equipment, where the response could be unpredictable.

Phase balancing

Most common distribution network and generation is done with 3 phase structures, with special attention paid to the phase balancing and resulting reduction of ground current. It is true for industrial or commercial networks where most power is used in 3 phase machines, but light commercial and residential users do not have real-time phase balancing capabilities. Often this issue leads to unexpected equipment behavior or malfunctions and in extreme cases fires. For example, sensitive professional analogue or digital recording equipment must be connected to well-balanced and grounded power networks. To determine and mitigate the cost of the unbalanced electricity network, electric companies in most cases charge by demand or as a separate category for heavy unbalanced A few simple techniques are available for balancing that require fast computing and real-time modeling.


Studies show that generally demand for electricity is driven largely by temperature. Heating demand in the winter and cooling demand (air conditioners) in the summer are what primarily drive the seasonal peaks in most regions. Heating degree days and cooling degree days help measure energy consumption by referencing the outdoor temperature above and below 65 degrees Fahrenheit, a commonly accepted baseline.

Hydropower availability

Snowpack, streamflows, seasonality, salmon, etc. all affect the amount of water that can flow through a dam at any given time. Forecasting these variables predicts the available potential energy for a dam for a given period. Some regions such as the Egypt, China and the Pacific Northwest get significant generation from hydroelectric dams.

Power plant and transmission outages

Whether planned or unplanned, outages affect the total amount of power that is available to the grid.

Fuel prices

The fuel used to generate electricity is the primary cost incurred by electrical generation companies. This will change as more renewable energy is used. Capital costs are the primary cost of solar and wind energy because they have no fuel cost.

Economic health

During times of economic hardship, many factories cut back production due to a reduction of consumer demand and therefore reduce production-related electrical demand.


Electricity pricing Wikipedia

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