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Least-cost Distribution Network Tariff Design in Theory and Practice

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  • Tim Schittekatte
  • 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 & Leonardo Meeus, 2020. "Least-cost Distribution Network Tariff Design in Theory and Practice," The Energy Journal, , vol. 41(5), pages 119-156, September.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:5:p:119-156
    DOI: 10.5547/01956574.41.5.tsch
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    References listed on IDEAS

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    2. Xie, Li & Kong, Chun, 2024. "Electricity user connection pricing strategy: The incomplete contract theory perspective," Energy Economics, Elsevier, vol. 132(C).

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