Optimal Policies to Promote Efficient Distributed Generation of Electricity

Abstract

We analyze the design of policies to promote efficient distributed generation (DG) of electricity. The optimal policy varies with the set of instruments available to the regulator and with the prevailing DG production technology. DG capacity charges often play a valuable role in inducing optimal investment in DG capacity, allowing payments for DG production to induce the optimal production of electricity using non-intermittent DG technologies. Net metering can be optimal in certain settings, but often is not optimal, especially for non-intermittent DG technologies.

Keywords: electricity pricing, distributed generation, regulation