Energy Transition

These 3 electricity regimes give us a glimpse of our global energy future

Dubai, Pakistan and California each have lessons to teach about managing electricity tariffs.

Dubai, Pakistan and California each have lessons to teach about managing electricity tariffs. Image: REUTERS/Pascal Rossignol

Lamé Verre
Head, Strategic Innovation and Sustainability, SSE Energy Solutions
Sharif Al Olama
Undersecretary, Ministry of Energy of the United Arab Emirates
Ayla Majid
Founder and Chief Executive Officer, Planetive
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This article is part of: Centre for Energy and Materials
  • To guarantee sustainable progress, electricity providers worldwide must implement well-thought-out tariff systems.
  • Well-designed electricity tariff structures can enable economic progress and help the fight against climate change.
  • Dubai, Pakistan and California each have something to teach us about how to build tariff structures fit for our shared electricity future.

The energy transition will only be possible if providers deliver for their customers and civil society, both of which must be carried along to deliver a just and customer-centric energy system.

With that in mind, a well-designed electricity tariff structure is crucial to supporting running households and operating businesses, attracting investment, ensuring economic development, enhancing competition and mitigating economic disparities. Since tariff structures directly impact the cost of electricity for individuals and entities across residential and commercial use, they’re a key tool for nations to ensure a pricing strategy prioritizing affordability for consumers.

Under certain conditions, tariffs can also encourage the use of renewable energy, greater energy effiency and electricity conservation measures, significantly impacting nations’ energy-related carbon footprint. Used wisely, electricity tariffs support the advent of the energy system of the future: balancing out economic objectives, social equity and environmental responsibility.

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Here are three examples showing how electricity tariffs are being used around the world to deliver productive, sustainable and resilient grids:

Incentivizing lower usage and efficiency: Dubai

Dubai’s economic success is fuelled by diverse economic activities underpinned by energy-intensive systems.

To managed this, the slab tariff system, introduced by Dubai Electricity & Water Authority (DEWA), encourages efficient electricity and water use by way of a progressive and tiered tariff system charging consumers based on their consumption levels. In this slab tariff, prices increase progressively in unit price with increased electricity and water consumption. While this tariff structure encourages consumers to be more efficient, it does not deter the growth and investment attractiveness of the country.

Variable price electricity tariff: Pakistan

Rapid urbanization, industrial expansion and increased reliance on electric infrastructure have significantly heightened Pakistan’s energy needs in the last decade. The majority of the country’s electricity infrastructure, including 10 distribution companies and the transmission company, are state-owned and the country also suffers from electricity losses.

Pakistan has adopted a multifaceted approach to pass on the electricity cost. The country put in place variable pricing under a tiered structure to cater to higher individual consumption. Conservation was also encouraged through a time-of-use tariff system, incentivizing consumption during off-peak hours. In 2023, the National Electric Power Regulatory Authority increased consumer electricity tariff in a move to account for the high cost of energy. Subsidies were then granted to residents and businesses across different categories to keep energy affordability in check. The new plans under implementation include the induction of least cost generation capacity to bring down the overall electricity cost.

Pushing for sustainability: California

California has substantial energy consumption needs. Driven by residential, commercial and industrial applications and a warm climate, the state faces immense challenges on its internal grid structure. Despite these challenges, California has promoted environmental stewardship and pioneered tariffications incentivizing lower energy usage. From incentives and tariffs encouraging the use of solar and wind energy, to net-metering measures encouraging consumers to feed self-generated electricity back into the grid, California is poised to have successfully leveraged tariffs and policies supporting the advent of a cleaner energy system and encourage grid modernization.

A bright future for energy systems

Analyzing these tariff systems unveils diverse economic, social and technologically intricate landscapes in which countries navigate the complexities of energy management while fostering sustainability and innovation.

Be it Dubai’s business-friendly and innovation-first model, Pakistan’s revenue-balancing structure or California’s green commitment, the thread of commonality among these systems lies in how they deliver on society’s needs while meeting growing demands and mitigating environmental impact.

In the world of global energy management, Dubai, Pakistan and California each demonstrate, in their unique ways, how tariffs can play a role in building a sustainable, resilient and abundant energy future.

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