Least-Cost Distribution Network Tariff Design in Theory and Practice

35 Pages Posted: 8 May 2018

See all articles by Tim Schittekatte

Tim Schittekatte

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Leonardo Meeus

Vlerick Business School; European University Institute

Date Written: April 2018

Abstract

In this paper a game-theoretical model with self-interest pursuing consumers is introduced 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.

Keywords: Batteries, distributed energy adoption, distribution network tariff design, game-theory, non-cooperative behaviour

JEL Classification: C7, D61, L94, L97, Q41, Q42

Suggested Citation

Schittekatte, Tim and Meeus, Leonardo, Least-Cost Distribution Network Tariff Design in Theory and Practice (April 2018). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2018/19, Available at SSRN: https://ssrn.com/abstract=3169855 or http://dx.doi.org/10.2139/ssrn.3169855

Tim Schittekatte (Contact Author)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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Leonardo Meeus

Vlerick Business School ( email )

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European University Institute ( email )

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