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Electricity Tariff Design via Lens of Energy Justice

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  • Khan, Hafiz Anwar Ullah
  • Ünel, Burçin
  • Dvorkin, Yury

Abstract

Distributed Energy Resources (DERs) can significantly affect the net social benefit in power systems, raising concerns pertaining to distributive justice and equity. Electricity tariff and DERs share a symbiotic relationship whereby the design of the former directly impacts the economic efficiency and equity in the system. Current tariff design approaches suffer from opaque efficiency-equity trade-offs and are also agnostic of the externalities that affect both economic efficiency and equity. Therefore, this paper develops a justice-cognizant tariff design framework that improves the operational savings in the system without sacrificing distributional equity, and encompasses economic welfare, social costs of environmental and public health impacts, and socio-economic and demographic characteristics of electricity consumers. The proposed framework is based on a Single Leader Single Follower (SLSF) game incorporating a multi-objective optimization problem, and is evaluated on four different tariff structures. The SLSF game is reformulated as a Multi-Objective Problem with Equilibrium Constraints (MOPEC) and is solved by integrating the objective sum method for multi-objective optimization and Scholtes’s relaxation technique for equilibrium constraints. We compare the operational savings and equity of the proposed framework using the 11-zone New York ISO and 7-bus Manhattan power networks. The results demonstrate that justice-cognizant, and spatially- and temporally-granular tariffs ensure equity and increase the operational savings at a lower energy burden to consumers.

Suggested Citation

  • Khan, Hafiz Anwar Ullah & Ünel, Burçin & Dvorkin, Yury, 2023. "Electricity Tariff Design via Lens of Energy Justice," Omega, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jomega:v:117:y:2023:i:c:s0305048322002286
    DOI: 10.1016/j.omega.2022.102822
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