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Marginal Cost Pricing

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Key Concepts in Energy

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Abstract

This chapter describes the debate that evolved around the diffusion of electrical-rate systems in twentieth-century Europe and the clash that ensued between the competitive, promotional, and cost-based approaches. The major question addressed is the historical origin of marginal cost pricing. We show how the volatility of the costs characterizing hydroelectric production made this particular technology very sensitive to a cost-based approach toward pricing and to a seasonal and time-of-day perspective on rate systems. Subsequently, and after World War II, the concept of marginal cost came to be interpreted in the context of variations in demand by time of both day and year, the source of peak-load problems, and practically translated into a version of time-of-day pricing.

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  1. Instituto Universitario de Lisboa, Lisbon, Portugal

    Nuno Luis Madureira

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  1. Nuno Luis Madureira
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Madureira, N.L. (2014). Marginal Cost Pricing. In: Key Concepts in Energy. Springer, Cham. https://doi.org/10.1007/978-3-319-04978-6_7

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  • DOI: https://doi.org/10.1007/978-3-319-04978-6_7

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