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Markets vs. Regulation: A Role for Indicative Energy Planning

Ignacio J. Perez-Arriaga and Pedro Linares

Year: 2008
Volume: Volume 29
Number: Special Issue #2
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-NoSI2-8
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Abstract:
The energy sector worldwide is facing the enormous challenge of finding a path of economic, environmental, and social sustainability. This paper argues that, although markets are adequate instruments to achieve an efficient allocation of resources and to promote private initiative, the resolution of the sustainability challenge cannot be left only to market forces, but requires other complementary instruments, among which we highlight indicative energy planning. We discuss the role of indicative energy planning in the future of liberalized energy markets, and propose a general methodology for its implementation, as well as the identification of the major issues to be addressed.



Improved Regulatory Approaches for the Remuneration of Electricity Distribution Utilities with High Penetrations of Distributed Energy Resources

Jesse D. Jenkins and Ignacio J. Pérez-Arriaga

Year: 2017
Volume: Volume 38
Number: Number 3
DOI: 10.5547/01956574.38.3.jjen
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Abstract:
Under increasing penetration of distributed resources, regulators and electricity distribution utilities face greater uncertainty regarding the evolution of network uses and efficient system costs. This uncertainty can threaten revenue adequacy and challenges both cost of service/rate of return and incentive/performance-based approaches to the remuneration of distribution utilities. To address these challenges, this paper proposes a novel methodology to establish allowed utility revenues over a multi-year regulatory period. This method combines several "state of the art" regulatory tools designed to overcome information asymmetries, manage uncertainty, and align incentives for utilities to cost-effectively integrate distributed energy resources while taking advantage of opportunities to reduce system costs and improve performance. We use a reference network model to simulate a large-scale urban distribution network, demonstrate the practical application of this regulatory method, and illustrate its performance in the face of both benchmark and forecast errors.



Restructuring Revisited Part 1: Competition in Electricity Distribution Systems

Scott P. Burger, Jesse D. Jenkins, Carlos Batlle, and Ignacio J. Pérez-Arriaga

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.sbur
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Abstract:
This paper addresses the implications of the emergence of distributed energy resources (DERs) for competition in the electricity distribution systems. The regulations on industry structures in place today were designed in an era characterized by centralized resources and relatively price inelastic demand. In light of the decentralization of the power sector, regulators and policy makers must carefully reconsider how industry structure at the distribution level affects competition, market development, and cost efficiency. We analyze the economic characteristics of distribution network owners and operators, DER owners, and aggregators and retailers. We translate the foundational theories in industrial organization and the lessons learned during the previous wave of power system restructuring to the modern context to provide insight into three questions. First, should distribution system operations be separated from distribution network ownership in order to ensure the neutrality of the DSO role? Second, should DNOs be allowed to own and operate DERs, or should DER ownership be left exclusively to competitive actors? Third, does the emergence of DERs necessitate a reconsideration of the role of competition in the provision of aggregation services such as retailing? This paper is the first part of a two-part series on competition and coordination in rapidly evolving electricity distribution systems.



Restructuring Revisited Part 2: Coordination in Electricity Distribution Systems

Scott P. Burger, Jesse D. Jenkins, Carlos Batlle, and Ignacio J. Perez-Arriaga

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.jjen
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Abstract:
This paper addresses the mechanisms needed to coordinate vertically and horizontally disaggregated actors in electricity distribution systems. The mechanisms designed to coordinate planning, investments, and operations in the electric power sector were designed with minimal participation from either the demand side of the market or distributed energy resources (DERs) connected at distribution voltages. The emergence of DERs is now animating consumers and massively expanding the number of potential investors and participants in the provision of electricity services. We highlight how price signals - the primary mechanism for coordinating investments and operations at the transmission level - do not adequately coordinate investments in and operations of DERs with network infrastructure. We discuss the role of the distribution system operator in creating cost-reflective prices, and argue that the price signals governing transactions at the distribution level must increasingly internalize the cost of network externalities, revealing the marginal cost or benefit of an actor's decisions. Price signals considered include contractual relationships, organized procurement processes, market signals, and regulated retail tariffs. This paper is the second part of a two-part series on competition and coordination in rapidly evolving electricity distribution systems.



The Efficiency and Distributional Effects of Alternative Residential Electricity Rate Designs

Scott P. Burger, Christopher R. Knittel, Ignacio J. Perez-Arriaga, Ian Schneider, and Frederik vom Scheidt

Year: 2020
Volume: Volume 41
Number: Number 1
DOI: 10.5547/01956574.41.1.sbur
View Abstract

Abstract:
Electricity tariffs typically charge residential users a volumetric rate that covers the bulk of energy, transmission, and distribution costs. The resulting prices, charged per unit of electricity consumed, do not reflect marginal costs and vary little across time and space. The emergence of distributed energy resources - such as solar photovoltaics and energy storage - has sparked interest among regulators and utilities in reforming electricity tariffs to enable more efficient utilization of these resources. The economic pressure to redesign electricity rates is countered by concerns of how more efficient rate structures might impact different socioeconomic groups. We analyze the bill impacts of alternative rate plans using interval metering data for more than 100,000 customers in the Chicago, Illinois area. We combine these data with granular Census data to assess the incidence of bill changes across different socioeconomic groups. We find that low-income customers would face bill increases on average in a transition to more economically efficient electricity tariffs. However, we demonstrate that simple changes to fixed charges in two-part tariffs can mitigate these disparities while preserving all, or the vast majority, of the efficiency gains. These designs rely exclusively on observable information and could be replicated by utilities in many geographies across the U.S.





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