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Assessing fairness of dynamic grid tariffs

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  • Neuteleers, Stijn
  • Mulder, Machiel
  • Hindriks, Frank

    (Groningen University)

Abstract

The increase in the supply of intermittent renewable energy and the higher electricity use lead to stronger variation in network usage, which either requires costly network extensions or the implementation of incentives to reduce peaks. This paper focuses on the latter, namely dynamic tariffs. However, a tension may exist between economic arguments for dynamic pricing and people perceiving such pricing as unfair. This paper seeks to assess the fairness of dynamic tariffs through a combination of theoretical and empirical research. Fairness is defined broader than inequality; it is understood more objectively than just people's perceptions and thus requires engagement with ethical theory; and the fairness analysis is not only based on abstract ethical reflection but also on analysing the underlying arguments for people's perceptions. Both the theoretical fairness assessment and the survey among Dutch households reveal that dynamic tariffs are less fair than transport and capacity tariffs and fairer than Ramsey pricing. The fairness of dynamic tariffs depends on implementation conditions such as: clear, non-economic arguments as justification, guarantying basic-needs fulfilment, decreasing perception that ‘peak use is only for the rich’, and increasing predictability.
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  • Neuteleers, Stijn & Mulder, Machiel & Hindriks, Frank, 2016. "Assessing fairness of dynamic grid tariffs," Research Report 16014-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  • Handle: RePEc:gro:rugsom:16014-eef
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    2. Batlle, Carlos & Mastropietro, Paolo & Rodilla, Pablo, 2020. "Redesigning residual cost allocation in electricity tariffs: A proposal to balance efficiency, equity and cost recovery," Renewable Energy, Elsevier, vol. 155(C), pages 257-266.
    3. Calver, Philippa & Simcock, Neil, 2021. "Demand response and energy justice: A critical overview of ethical risks and opportunities within digital, decentralised, and decarbonised futures," Energy Policy, Elsevier, vol. 151(C).
    4. Hanny, Lisa & Wagner, Jonathan & Buhl, Hans Ulrich & Heffron, Raphael & Körner, Marc-Fabian & Schöpf, Michael & Weibelzahl, Martin, 2022. "On the progress in flexibility and grid charges in light of the energy transition: The case of Germany," Energy Policy, Elsevier, vol. 165(C).
    5. Ovaere, Marten & Heylen, Evelyn & Proost, Stef & Deconinck, Geert & Van Hertem, Dirk, 2019. "How detailed value of lost load data impact power system reliability decisions," Energy Policy, Elsevier, vol. 132(C), pages 1064-1075.
    6. Edens, Marga G. & Lavrijssen, Saskia A.C.M., 2019. "Balancing public values during the energy transition – How can German and Dutch DSOs safeguard sustainability?," Energy Policy, Elsevier, vol. 128(C), pages 57-65.
    7. Govaerts, Niels & Bruninx, Kenneth & Le Cadre, Hélène & Meeus, Leonardo & Delarue, Erik, 2023. "Signaling future or historical distribution grid costs via tariffs? A welfare analysis of long-run incremental cost pricing," Utilities Policy, Elsevier, vol. 82(C).
    8. Saskia Lavrijssen & Arturo Carrillo Parra, 2017. "Radical Prosumer Innovations in the Electricity Sector and the Impact on Prosumer Regulation," Sustainability, MDPI, vol. 9(7), pages 1-21, July.
    9. Bjarghov, Sigurd & Farahmand, Hossein & Doorman, Gerard, 2022. "Capacity subscription grid tariff efficiency and the impact of uncertainty on the subscribed level," Energy Policy, Elsevier, vol. 165(C).
    10. Ansarin, Mohammad & Ghiassi-Farrokhfal, Yashar & Ketter, Wolfgang & Collins, John, 2022. "A review of equity in electricity tariffs in the renewable energy era," Renewable and Sustainable Energy Reviews, Elsevier, vol. 161(C).
    11. Milchram, Christine & Künneke, Rolf & Doorn, Neelke & van de Kaa, Geerten & Hillerbrand, Rafaela, 2020. "Designing for justice in electricity systems: A comparison of smart grid experiments in the Netherlands," Energy Policy, Elsevier, vol. 147(C).
    12. Sandberg, Eli & Kirkerud, Jon Gustav & Trømborg, Erik & Bolkesjø, Torjus Folsland, 2019. "Energy system impacts of grid tariff structures for flexible power-to-district heat," Energy, Elsevier, vol. 168(C), pages 772-781.
    13. Avau, Michiel & Govaerts, Niels & Delarue, Erik, 2021. "Impact of distribution tariffs on prosumer demand response," Energy Policy, Elsevier, vol. 151(C).
    14. Vaughan, Jim & Doumen, Sjoerd C. & Kok, Koen, 2023. "Empowering tomorrow, controlling today: A multi-criteria assessment of distribution grid tariff designs," Applied Energy, Elsevier, vol. 341(C).
    15. Küfeoğlu, Sinan & Pollitt, Michael G., 2019. "The impact of PVs and EVs on domestic electricity network charges: A case study from Great Britain," Energy Policy, Elsevier, vol. 127(C), pages 412-424.
    16. Gert Brunekreeft & Julia Kusznir & Roland Meyer, 2020. "Output-orientierte Regulierung – ein Überblick," Bremen Energy Working Papers 0035, Bremen Energy Research.
    17. Simeone, Christina E. & Gagnon, Pieter & Cappers, Peter & Satchwell, Andrew, 2023. "The bill alignment test: Identifying trade-offs with residential rate design options," Utilities Policy, Elsevier, vol. 82(C).
    18. Stawska, Anna & Romero, Natalia & de Weerdt, Mathijs & Verzijlbergh, Remco, 2021. "Demand response: For congestion management or for grid balancing?," Energy Policy, Elsevier, vol. 148(PA).
    19. Seyedfarzad Sarfarazi & Marc Deissenroth-Uhrig & Valentin Bertsch, 2020. "Aggregation of Households in Community Energy Systems: An Analysis from Actors’ and Market Perspectives," Energies, MDPI, vol. 13(19), pages 1-37, October.
    20. Hennig, Roman J. & Ribó-Pérez, David & de Vries, Laurens J. & Tindemans, Simon H., 2022. "What is a good distribution network tariff?—Developing indicators for performance assessment," Applied Energy, Elsevier, vol. 318(C).
    21. Dina A. Zaki & Mohamed Hamdy, 2022. "A Review of Electricity Tariffs and Enabling Solutions for Optimal Energy Management," Energies, MDPI, vol. 15(22), pages 1-17, November.
    22. Sigurd Bjarghov & Hossein Farahmand & Gerard Doorman, 2021. "Grid Tariffs Based on Capacity Subscription: Multi Year Analysis on Metered Consumer Data," Papers 2111.06253, arXiv.org.
    23. Merel Noorman & Brenda Espinosa Apráez & Saskia Lavrijssen, 2023. "AI and Energy Justice," Energies, MDPI, vol. 16(5), pages 1-16, February.

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