Incentivizig consumer response through cost-reflective distribution network charges

Abstract

The emergence of distributed energy resources (DERs) provides the alternative to consumers to partially or fully self-provide electricity needs. In this context, efficient tariff design should guide efficient DERs deployment. Retail electricity prices, composed of energy prices, network charges and other regulated charges, play a role in influencing the short- and long- term decisions taken by consumers. In order to incentivize consumer response, correctly designed tariffs are needed that reflect consumer’s impact on network cost while fully recovering those costs. Through numerical case studies, this paper demonstrates how different tariff designs are able to yield to different consumer responses. Within each tariff design, the consumer takes optimal decisions to minimize his total costs. Three different tariff designs are presented: first, a tariff that includes a flat energy price with fixed network charges; secondly a volumetric network charge instead of fixed; and thirdly, cost-reflective network charges consisting of distribution locational marginal prices to price energy, advanced demand charges to allocate part of the network costs and fixed charges to allocate the residual part of network costs.