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Least-cost Distribution Network Tariff Design in Theory and Practice

Tim Schittekatte and Leonardo Meeus

Year: 2020
Volume: Volume 41
Number: Number 5
DOI: 10.5547/01956574.41.5.tsch
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Abstract:
In this paper a game-theoretical model with self-interest pursuing consumers is introduced in order to assess how to design a least-cost distribution tariff under two constraints that regulators typically face. The first constraint is related to difficulties regarding the implementation of cost-reflective tariffs. In practice, so-called cost-reflective tariffs are only a proxy for the actual cost driver(s) in distribution grids. The second constraint has to do with fairness. There is a fear that active consumers investing in distributed energy resources (DER) might benefit at the expense of passive consumers. We find that both constraints have a significant impact on the least-cost network tariff design, and the results depend on the state of the grid. If most of the grid investments still have to be made, passive and active consumers can both benefit from cost-reflective tariffs, while this is not the case for passive consumers if the costs are mostly sunk.



Electricity Retail Rate Design in a Decarbonizing Economy: An Analysis of Time-of-use and Critical Peak Pricing

Tim Schittekatte, Dharik Mallapragada, Paul L. Joskow, and Richard Schmalensee

Year: 2024
Volume: Volume 45
Number: Number 3
DOI: 10.5547/01956574.45.3.tsch
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Abstract:
Currently, the main component of most U.S. consumers' electricity bills is based on a constant price per kWh consumed. As intermittent renewable resources and flexible loads that can be shifted within days (such as electric vehicle charging) gain prominence in the electricity system, the efficiency gains to be realized from basing bills instead on wholesale spot prices increase. There is little political support for this change, however. We focus on second-best alternatives: time-of-use (TOU) rates and critical peak pricing (CPP). We introduce alternative assessment criteria that focus on intra-day load shifting. Using historical data, we find that TOU rates can reasonably replicate the intra-day load-shifting incentives provided under spot pricing. Thus, TOU rates, especially when complemented with CPP involving load control during infrequent scarcity price events, can be considerably more socially valuable than previously estimated.





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