A note on the economics of Metered grid pricing

Imbalances in generation and demand locality in the German power market give rise to seemingly unfair grid cost allocations: few customers in wind-rich north-east Germany pay a major share of the costs of transmitting power to customers in the south. This development has prompted demands for billing the extend of grid usage - i.e., a customer´s costs should be lower when procuring `local´ power than in the case of distant power. We call this a `metered´ grid costs approach as opposed to the standard global levy. Using an economic model we find that such metered grid costs may increase total welfare by inducing higher cost efficiency. However, they will typically also give rise to significantly higher consumer costs as generators may leverage grid costs as differentiation devices to enhance their profits.