Investigating the impact on marginal prices when using an increasing block tariff : An economic tool to reduce peak flowrates atwastewater treatment facilities

Abstract: In wastewater management big variations in flowrates, caused by precipitation, leads to high peak loads forcing treatment facilities to maintain large over capacity. Wastewater management is a capital-intensive industry, meaning that new investments are costly and should therefore be avoided. But as peak load levels increase and stricter regulations are imposed it becomes increasingly hard to maintain sufficient reduction rates and facilities are likely to face new investments if the highest flowrates can’t be reduced. One way to reduce flowrates is to charge higher prices for the peak loads through an efficient tariff design. This thesis includes a literature review to define what constitutes an efficient tariff and then moves on to develop a model including marginal cost pricing and increasing block tariff design that examine how the marginal cost price is affected by constructing the tariff in different ways. The results show that the marginal price can be significantly increased by adapting this approach compared to a two part tariff with one fixed and one variable part which is commonly used by wastewater utilities today. The biggest deciding factor will be how the marginal block is defined.