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

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 counterintuitive 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.

Keywords: distributed energy resources, procurement, regulation

JEL Classification: L51, L94