Electricity Pricing and the Energy Transition for Residential and Non-Residential Consumers

High electricity prices hinder efforts to decarbonize through electrification. In this paper, we demonstrate the inefficiencies of the retail electricity tariffs for both residential and non residential consumers in Colombia. We show the low take up for a 2012 policy in Colombia that reduced electricity prices for industrial users. As an alternative, we propose a novel tariff design that eliminates customer class distinctions, aligns prices with marginal costs, and introduces a fixed charge based on estimated willingness to pay. Using data for the entire population of electricity consumers in Colombia, we illustrate the tariff’s potential to eliminate existing distortions in electricity pricing across customer classes while limiting bill increases for low income households.