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Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources

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  • Brown, David P.

    (University of Alberta, Department of Economics)

  • Sappington, David E. M.

    (University of Florida, Department of Economics)

Abstract

We consider the optimal design of simple cost-sharing policies to motivate electricity distribution utilities to manage the costs of distributed energy resource (DER) projects. The optimal share of realized cost savings (s) that is awarded to the utility takes a particularly simple form in certain settings. More generally, s can vary with the prevailing environment in subtle and sometimes counter-intuitive ways. For instance, s may increase as cost savings become less onerous for the utility to secure and as the utility becomes more averse to risk. Gains from affording the utility a choice among cost-sharing policies typically are minimal.

Suggested Citation

  • Brown, David P. & Sappington, David E. M., 2018. "Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources," Working Papers 2018-9, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2018_009
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    References listed on IDEAS

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    1. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    2. David P. Brown and David E. M. Sappington, 2018. "Optimal Procurement of Distributed Energy Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
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    8. Jesse D. Jenkins & Ignacio J. Pérez-Arriaga, 2017. "Improved Regulatory Approaches for the Remuneration of Electricity Distribution Utilities with High Penetrations of Distributed Energy Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    9. David Sappington, 1996. "Designing Incentive Regulation for the Telecommunications Industry," Books, American Enterprise Institute, number 52863, September.
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    Cited by:

    1. David P. Brown & David E. M. Sappington, 2021. "On the profitability of self‐sabotage," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 68-91, February.
    2. Brown, David P. & Sappington, David E.M., 2020. "Motivating the optimal procurement and deployment of electric storage as a transmission asset," Energy Policy, Elsevier, vol. 138(C).

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    More about this item

    Keywords

    distributed energy resources; procurement; regulation;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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