The Distributional Politics of Electricity Pricing in Europe

It is hardly disputable that electricity markets are genuinely political constructs.Policies and regulations shape electricity pricing in order to compensate, incentivize investments, and sustain business cases on both the generation and consumption sides.In the ongoing transition to a low-carbon economy and power sector, retail electricity prices incorporate a plethora of transitionrelated costs -from surcharges financing renewable energy support, to grid expansion, and the costs of balancing, congestion management, and redispatch.Yet, there is a relatively limited understanding of how countries use electricity prices to allocate these costs across consumer groups.A comparative perspective on retail electricity pricing across consumer groups reveals substantial cross-country differences in the distributional design of electricity pricing regimes.Even within a shared European market and regulatory framework -of which the UK was part until 2021 -the distributional effects of electricity pricing have differed markedly.These differences are not merely technical outcomes but reflect deliberate political choices -choices that are becoming increasingly contested as electricity accounts for a growing share of final energy consumption and expenditures.This article examines how retail electricity prices differ between household and industrial consumers over time and identifies the cost components driving these differences in four European countries: Germany, Spain, Sweden, and the UK.It then considers the policy and regulatory levers shaping price variations across consumer groups, and outlines tentative explanations for the political-economic configurations underlying these choices. Cross-country variationPolicy and regulatory decisions are often targeted at specific segments of electricity consumers.In most countries, the key distinction is between household and industrial consumers, who differ in consumption patterns and are subject to different 43 This is aligned with The Brattle Group proposal for 'clean capital efficiency' that emphasizes minimizing costly new infrastructure by maximizing the use of existing systems.They recommend a suite of strategies alongside system expansion: revised energy efficiency programs, accelerated demand flexibility programs, optimizing and possibly owning distributed energy resources, low-capital transmission expansion technologies, and leveraging off-balance sheet capital sources.