Forward-looking dynamic network tariffs: an efficient solution for price-responsive customers

Abstract

Electricity network tariffs intend to recover network costs and adhere to economic efficiency and equity principles. Most network tariffs in real-world systems focus on cost recovery, implicitly assuming non-responsive customers. This article proposes a forward-looking dynamic network tariff that could be implemented in real-world electricity systems. First, when considering the entire network, consumers and generators must be clustered into subsystems by voltage levels, enabling the calculation of the network utilization levels; this is the so-called cascade model. After, per voltage level, the network tariff needs to be computed. The forward-looking tariff consists of a peak-coincident energy charge, which is symmetric for injections and withdrawals, a per-kWh component for energy losses, and a fixed residual network charge. This tariff design incentivizes shifting flexible loads to off-peak hours and aligns individual customer incentives with expected system benefits, reducing future network investments. In addition, the symmetric nature of the proposed tariff enables a level playing field for active customers providing flexible services. The Slovenian regulator has considered the designed tariff for future implementation. This article summarizes the findings of [1] by the same authors.

Electricity network tariffs intend to recover network costs and adhere to economic efficiency and equity principles. Most network tariffs in real-world systems focus on cost recovery, implicitly assuming non-responsive customers. This article proposes a forward-looking dynamic network tariff that could be implemented in real-world electricity systems. First, when considering the entire network, consumers and generators must be clustered into subsystems by voltage levels, enabling the calculation of the network utilization levels; this is the so-called cascade model. After, per voltage level, the network tariff needs to be computed. The forward-looking tariff consists of a peak-coincident energy charge, which is symmetric for injections and withdrawals, a per-kWh component for energy losses, and a fixed residual network charge. This tariff design incentivizes shifting flexible loads to off-peak hours and aligns individual customer incentives with expected system benefits, reducing future network investments. In addition, the symmetric nature of the proposed tariff enables a level playing field for active customers providing flexible services. The Slovenian regulator has considered the designed tariff for future implementation. This article summarizes the findings of [1] by the same authors.