Quantitative Assessment and Analysis of the Household Electricity Rates System

Author Name KAINOU Kazunari  (Fellow, RIETI)
Creation Date/NO. June 2009 09-J-015
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Today's household electricity rates system generally adopts a three-stage rates system. Under this system, rates for small levels of consumption are low, to serve as a social policy that reduces the burden on the lower income class, and rates for large levels of consumption are high, to reflect energy and environmental policies that promote energy conservation.

Since more than thirty years have passed since this three-stage rates system was adopted in 1974, quantitative assessment and analysis were carried out to determine whether or not the above system was still having the effect of reducing the burden on the lower income class and encouraging energy conservation by large consumers. The assessment was concluded by analyzing trends in public statistics, such as spending on electricity by the five income classes and age groups presented in the Family Income and Expenditure Survey published by the Ministry of Internal Affairs and Communications.

Based on the assessment and analysis, a reduction in rates, the first stage in the three-stage system, has been assessed as still having some effect as a social policy because, while spending on electricity as a percentage of household consumption of the lowest income class, which comprises 20% of all income classes, has continued to increase, the relative share of the burden of electricity expenses among different income classes has remained unchanged over the past thirty years, and the lowest income class was overlapping with older users, namely those aged over 60 years old.

Meanwhile, higher rates, the third stage in the three-stage system, also appeared to be functioning to a certain extent as an energy conservation tool because of the price effect. The effects of prices have only been clear in the mid-to-high income ranges or in households where the parents are in their 50s and household spending on electricity is large. These are the classes that are obviously relatively heavy users of electricity with the third stage rate.

However, it is important to note that this assessment was made on the effects of the existing system, and it does not make any suggestions about the appropriateness of a social policy for lower-income earners through the electricity rates system or about the effects of energy conservation when higher rates are introduced in the electricity rates system.