Electricity Pricing Mechanism in a Sustainable Environment: A Review and a System Dynamics Modeling Approach

Electricity is an undisputed factor supporting human development, while further supporting social wellbeing and fostering economic growth of modern societies. Therefore, the electricity market provides a vivid policy-making arena for the EU regulators, where on-going structural reforms are promoted with the aim to encapsulate and accommodate sustainability aspects. Notably, the EU Member States have adopted the strategic roadmap “Europe 2020” toward reducing greenhouse gas emissions and energy consumption by 20 %, and generating 20 % of energy from renewable sources. However, our research highlights that strategies trying to balance sustainable electricity supply with demand often neglect the societal pricing acceptability of the electricity provided to consumers. Thus far, existing literature focuses on electricity pricing policies that fail to capture the dynamics that have to govern realistic pricing schema in the electricity sector. To that end, this study elaborates the system dynamics (SD) methodological approach to embrace the potential dominant factors within a sustainable electricity system. The proposed SD framework could assist public and private stakeholders in determining a rational electricity pricing policy within a sustainability context. Finally, policy-making interventions are discussed in order to provide managerial insights for the decision-makers.