Plicy and economic impacts of end users tariff policies considering the death spiral : application to a spanish case study

Abstract

Recently, the cost for Renewable Energy Sources (RES) and the other distributed energy resources have become more affordable at the household level, especially photovoltaics (PV) and storage batteries. With this, the possibility of households to become “prosumers” (producers and consumers of energy at the same time) becomes an attractive alternative due to the opportunity to save on the electricity bill costs. The traditional concept where a household can only purchase from the grid becomes outdated; this also triggers the concern of “death spiral.” The reinforcing loop where the increase of the prosumers can provoke them to defect from the grid and force the utilities to increase their tariffs in order to cover their network grid and additional policies cost. Where in the past, this kind of condition was unlikely to happen. Due to household consumers are usually the least elastic and ended up carrying the burden of the of the cost because this type of end user will not change their consumption by much, even if prices increase greatly (Alleman, 1999; Ramsey, 1927). This research is using Vensim software to build and run a model of the Spanish household market based on System Dynamics (SD) methodology. The model is using six different scenarios that tested into four kinds of combinations of policy: no net metering and mixed tariff, no net metering and volumetric tariffs, net metering and volumetric tariffs, and net metering with mixed tariff. On top of that, the possibility of exit charges and network-only regulation charges were also being tested on those four combinations of policy, to see about the potential possibility of the “death spiral” in the Spanish household market. Results indicated that there is less possibility for the “death spiral” happening in Spain’s household market. Interestingly, cost recovery aside the concept of net metering leads to less to none of the grid defection, and without net metering, it is encouraging households to defect from the grid. Other results are fixed-network regulation cost can dampen grid disconnection, but at the same time delayed the RES adoption, and exit charges managed to prevent grid defection. Other alternatives are needed to be explored in order to foster RES, efficient market mechanisms need to be designed in order to put in level playing field different technologies at different scales and not incentivizing certain technologies with non-transparent cost shifting among consumers as net-metering does.