Role of Tariff Policy in Improving Energy Efficiency in the Residential Sector

Abstract

Tariff policy plays an important role in providing “right” price signals for consumers, which is a necessary condition to improve the demand side energy efficiency (EE) in terms of the environmental, social and economic benefits. Improving EE is the most effective way to address challenges of energy security, import dependency and climate change. In spite of these benefits EE still remains underutilized in Georgia. Regulators can partly address this issue by creating “right” consumer incentives through adequate electricity tariffs. In other words, the price should reflect the costs considering all its components, and guarantee that the cost of the companies involved in electricity chain are covered. Electricity tariffs can stimulate energy efficiency, however, if other barriers remain unaddressed, raising utility tariffs alone will not lead to the desired effect. Another important factor affecting consumers’ incentives is the transparency of the tariff. Consumers should be able to understand the electricity price and consumption so the tariff can motivate decisions toward both behavior changes and investments in energy efficient technologies.