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Least-cost Distribution Network Tariff Design in Theory and Practice

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  • Tim Schittekatte and Leonardo Meeus

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.

Suggested Citation

  • Tim Schittekatte and Leonardo Meeus, 2020. "Least-cost Distribution Network Tariff Design in Theory and Practice," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 119-156.
    • Handle: RePEc:aen:journl:ej41-5-schittekatte
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    Cited by:

    1. Morell-Dameto, Nicolás & Chaves-Ávila, José Pablo & Gómez San Román, Tomás & Schittekatte, Tim, 2023. "Forward-looking dynamic network charges for real-world electricity systems: A Slovenian case study," Energy Economics, Elsevier, vol. 125(C).
    2. Athir Nouicer, Leonardo Meeus, and Erik Delarue, 2023. "The Economics of Demand-side Flexibility in Distribution Grids," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    3. Roberts, Mike B. & Sharma, Arijit & MacGill, Iain, 2022. "Efficient, effective and fair allocation of costs and benefits in residential energy communities deploying shared photovoltaics," Applied Energy, Elsevier, vol. 305(C).
    4. Nouicer, Athir & Meeus, Leonardo & Delarue, Erik, 2023. "Demand-side flexibility in distribution grids: Voluntary versus mandatory contracting," Energy Policy, Elsevier, vol. 173(C).
    5. Manuel de Villena, Miguel & Jacqmin, Julien & Fonteneau, Raphael & Gautier, Axel & Ernst, Damien, 2021. "Network tariffs and the integration of prosumers: The case of Wallonia," Energy Policy, Elsevier, vol. 150(C).
    6. Bergaentzle, Claire & Gunkel, Philipp Andreas, 2022. "Cross-sector flexibility, storage investment and the integration of renewables: Capturing the impacts of grid tariffs," Energy Policy, Elsevier, vol. 164(C).
    7. Govaerts, Niels & Bruninx, Kenneth & Le Cadre, Hélène & Meeus, Leonardo & Delarue, Erik, 2023. "Signaling future or historical distribution grid costs via tariffs? A welfare analysis of long-run incremental cost pricing," Utilities Policy, Elsevier, vol. 82(C).
    8. Niels Govaerts & Kenneth Bruninx & Hélène Le Cadre & Leonardo Meeus & Erik Delarue, 2021. "Forward-looking distribution network charges considering lumpy investments," Journal of Regulatory Economics, Springer, vol. 59(3), pages 280-302, June.
    9. Freitas Gomes, Icaro Silvestre & Perez, Yannick & Suomalainen, Emilia, 2021. "Rate design with distributed energy resources and electric vehicles: A Californian case study," Energy Economics, Elsevier, vol. 102(C).
    10. Hendam, Mohamed & Schittekatte, Tim & Abdel-Rahman, Mohamed & Kamh, Mohamed Zakaria, 2022. "Rethinking electricity rate design: Fostering the energy transition in North Africa," Energy Policy, Elsevier, vol. 169(C).
    11. Khan, Hafiz Anwar Ullah & Ünel, Burçin & Dvorkin, Yury, 2023. "Electricity Tariff Design via Lens of Energy Justice," Omega, Elsevier, vol. 117(C).
    12. Askeland, Magnus & Backe, Stian & Bjarghov, Sigurd & Korpås, Magnus, 2021. "Helping end-users help each other: Coordinating development and operation of distributed resources through local power markets and grid tariffs," Energy Economics, Elsevier, vol. 94(C).
    13. Qiu, Yueming Lucy & Wang, Yi David & Iseki, Hiroyuki & Shen, Xingchi & Xing, Bo & Zhang, Huiming, 2022. "Empirical grid impact of in-home electric vehicle charging differs from predictions," Resource and Energy Economics, Elsevier, vol. 67(C).
    14. Jeddi, Samir & Sitzmann, Amelie, 2021. "Network tariffs under different pricing schemes in a dynamically consistent framework," EWI Working Papers 2021-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).

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    JEL classification:

    • F0 - International Economics - - General

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