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Optimal Procurement of Distributed Energy Resources

Abstract:
We analyze the optimal design of policies to motivate electricity distribution companies to adopt efficient distributed energy resources (DER) and manage associated project costs. The optimal policy often entails a bias against new DER projects and implements cost sharing when DER projects are undertaken in order to foster cost containment while limiting excessive profit for the utility. Failure to adequately tailor the degree of cost sharing to the prevailing environment can raise procurement costs substantially. The distribution company may optimally be awarded more than the cost saving it achieves.Keywords: Distributed Energy Resources, Procurement, Regulation

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Energy Specializations: Electricity – Distributed Generation; Electricity – Policy and Regulation

JEL Codes: Q56: Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth, Q50: Environmental Economics: General, L98: Industry Studies: Utilities and Transportation: Government Policy, Q41: Energy: Demand and Supply; Prices, L95: Gas Utilities; Pipelines; Water Utilities, Q24: Renewable Resources and Conservation: Land

Keywords: Distributed Energy Resources, Procurement, Regulation

DOI: 10.5547/01956574.39.5.dbro

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Published in Volume 39, Number 5 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.