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On the role of maximum demand charges in the presence of distributed generation resources

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  • Brown, David P.
  • Sappington, David E.M.

Abstract

We examine the role that maximum demand charges (MDCs) might play in ensuring the financial viability of utilities in the presence of ever-expanding distributed generation (DG) of electricity. We find that optimally-designed MDCs generally secure gains for consumers that do not undertake DG, and often secure gains for consumers that undertake DG. However, the welfare gains tend to be modest in plausible settings. Furthermore, time-of-use pricing often secures larger welfare gains than do MDCs.

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  • Brown, David P. & Sappington, David E.M., 2018. "On the role of maximum demand charges in the presence of distributed generation resources," Energy Economics, Elsevier, vol. 69(C), pages 237-249.
    • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:237-249
    DOI: 10.1016/j.eneco.2017.11.023
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    7. Boampong, Richard & Brown, David P., 2020. "On the benefits of behind-the-meter rooftop solar and energy storage: The importance of retail rate design," Energy Economics, Elsevier, vol. 86(C).
    8. Wangsness, Paal Brevik & Proost, Stef & Rødseth, Kenneth Løvold, 2021. "Optimal policies for electromobility: Joint assessment of transport and electricity distribution costs in Norway," Utilities Policy, Elsevier, vol. 72(C).
    9. Timothé Beaufils & Pierre-Olivier Pineau, 2018. "Structures tarifaires et spirale de la mort : État des lieux des pratiques de tarification dans la distribution d’électricité résidentielle," CIRANO Working Papers 2018s-27, CIRANO.
    10. Darghouth, Naïm R. & Barbose, Galen & Zuboy, Jarett & Gagnon, Pieter J. & Mills, Andrew D. & Bird, Lori, 2020. "Demand charge savings from solar PV and energy storage," Energy Policy, Elsevier, vol. 146(C).
    11. Brown, David P. & Sappington, David E.M., 2018. "On the role of maximum demand charges in the presence of distributed generation resources," Energy Economics, Elsevier, vol. 69(C), pages 237-249.
    12. 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).
    13. 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).
    14. Karim L. Anaya & Michael G. Pollitt, 2021. "The Role of Regulators in Promoting the Procurement of Flexibility Services within the Electricity Distribution System: A Survey of Seven Leading Countries," Energies, MDPI, vol. 14(14), pages 1-25, July.
    15. 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.
    16. Avau, Michiel & Govaerts, Niels & Delarue, Erik, 2021. "Impact of distribution tariffs on prosumer demand response," Energy Policy, Elsevier, vol. 151(C).
    17. Cambini, Carlo & Soroush, Golnoush, 2019. "Designing grid tariffs in the presence of distributed generation," Utilities Policy, Elsevier, vol. 61(C).
    18. Bovera, Filippo & Delfanti, Maurizio & Fumagalli, Elena & Lo Schiavo, Luca & Vailati, Riccardo, 2021. "Regulating electricity distribution networks under technological and demand uncertainty," Energy Policy, Elsevier, vol. 149(C).
    19. Govaerts, Niels & Bruninx, Kenneth & Le Cadre, Hélène & Meeus, Leonardo & Delarue, Erik, 2019. "Spillover effects of distribution grid tariffs in the internal electricity market: An argument for harmonization?," Energy Economics, Elsevier, vol. 84(C).

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    More about this item

    Keywords

    Maximum demand charges; Distributed generation; Time-of-use prices; Electricity regulation;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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