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Reorganizing Power Markets: A Reliability insurance Business Model for Utilities

Author

Listed:
  • Rolando Fuentes
  • Jorge Blazquez
  • Iqbal Adjali

    (King Abdullah Petroleum Studies and Research Center)

Abstract

A market in which individuals pursue their own self-interest normally maximizes aggregate economic well-being. But households that install Distributed Energy Resources (DERs) in order to obtain savings in their electricity bill, impose an external cost on other customers. At scale, their actions can lead to higher electricity tariffs for utility customers and, in the extreme case, a utility death spiral. In this paper, we propose a market mechanism that may ameliorate this potential distortion based on the creation of a market for risk. Utilities would provide reliability insurance services to households to protect them against the failure of their own DER systems. Creating such an insurance market would allow customers to choose a premium according to their preference for reliability. It could also limit the potential utility death spiral efficiently, as the path would be driven by market mechanisms that arise after reassigning property rights and liabilities between utilities and their customers.

Suggested Citation

  • Rolando Fuentes & Jorge Blazquez & Iqbal Adjali, 2018. "Reorganizing Power Markets: A Reliability insurance Business Model for Utilities," Discussion Papers ks-2018-dp45, King Abdullah Petroleum Studies and Research Center.
    • Handle: RePEc:prc:dpaper:ks-2018-dp45
    DOI: 10.30573/KS--2018-DP45
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    Keywords

    Distributed energy resources (DER); Electric power; Power markets; Utilities;
    All these keywords.

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