Oxford Energy Podcast – Prices behind the meter: efficient economic signals to support decarbonization

Electricity consumers are critical to the success of decarbonization. The decisions they make – behind their electricity meters – could fundamentally change the energy sector. In this Podcast, David Ledesma discusses with David Robinson, Senior Research Fellow at the OIES, how ‘behind the meter’ generation will be important to the decarbonisation of the electricity sector. In the past, most consumers were passive; they had no control over how electricity was generated and supplied; and they had no option but to pay for electricity supplied by the system.  Now, consumers have the potential to become active in the management of their electricity supplies, for instance by generating electricity with rooftop solar, storing electricity in batteries and buying flexible electrical equipment that operates when renewable energy is available. They also have the potential to decarbonize their own energy consumption by investing in electric heat pumps to replace oil and gas boilers and in electric vehicles to replace vehicles running on gasoline and diesel. Apart from contributing to decarbonization and lowering their own costs, active consumers can provide flexibility services to the power system and thereby facilitate the penetration of intermittent renewables. However, for all these good things to occur, the economic signals consumers receive behind the meter have to be efficient. Unfortunately, price signals in many countries are inefficient or non-existent; this is likely to slow decarbonization and unnecessarily raise costs. This paper emphasizes the importance of encouraging only efficient consumer decisions, especially for investment and use of resources behind the meter. It focuses on eliminating existing price (fiscal and regulatory) distortions in certain liberalized electricity markets in the European Union (EU) and on creating or changing markets to reflect new economic and technological conditions.