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

Author

Listed:
  • David P. Brown

    (University of Alberta, Department of Economics)

  • David E. M. Sappington

    (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

  • David P. Brown & David E. M. Sappington, 2018. "Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources," Working Papers 2018-09, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2018_009
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    File URL: https://sites.ualberta.ca/~econwps/2018/wp2018-09.pdf
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    References listed on IDEAS

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    7. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    8. repec:aen:journl:ej39-5-brown is not listed on IDEAS
    9. Cossent, Rafael & Gómez, Tomás, 2013. "Implementing incentive compatible menus of contracts to regulate electricity distribution investments," Utilities Policy, Elsevier, vol. 27(C), pages 28-38.
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    Cited by:

    1. 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).
    2. 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.

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    More about this item

    Keywords

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    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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