Industrial electricity pricing and renewable energy : a temporal analysis of the effect of taxes

Abstract

This study investigates the industrial electricity pricing (IEP) profiles of 22 OECD countries to understand the effect of renewable energy and taxes on overall prices. Clustering analysis was performed on pricing data from the year 2000 to 2018 to observe how prices evolved. Ordinal logit regression analysis was performed to determine possible associations between the clustered groups and the percentage share of renewables generated (REG), specifically linked to wind, solar photovoltaics and solar thermal. Other independent variables indicating economic and market structures were also considered. Clustering results for both prices before and after tax indicated three pricing clusters, termed low, median, and high pricing clusters. IEP in Italy and Germany was found to have the highest effect owing to taxes, while IEP in countries such as the US, Norway, Canada, and Denmark was least affected by taxes. Regression results show positive associations between the clustered profiles and REG. The positive association between the non-taxed component of IEP and a unit increase in REG is 1.41 times, whereas the positive association of overall IEP price (including taxes) and a unit increase in REG is 56.26 times, which is 39.9 times higher. Our results show that REG penetration has had a minimal effect on IEP over the time under consideration, but rather that the taxation on IEP coincides with REG penetration, contributing to IEP increases.