Least-Cost Distribution Network Tariff Design in Theory and Practice

Schittekatte, T. and Meeus, L., 2020. Least-cost distribution network tariff design in theory and practice. The Energy Journal, 41(5), pp. 119-155

38 Pages Posted: 16 Mar 2021

See all articles by Tim Schittekatte

Tim Schittekatte

European University Institute - Florence School of Regulation; MIT Energy Initiative

Leonardo Meeus

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

Date Written: January 1, 2020

Abstract

In this paper a game-theoretical model with self-interest pursuing consumers is introduced in order 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, gametheory, 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 (January 1, 2020). Schittekatte, T. and Meeus, L., 2020. Least-cost distribution network tariff design in theory and practice. The Energy Journal, 41(5), pp. 119-155, Available at SSRN: https://ssrn.com/abstract=3774893

Tim Schittekatte (Contact Author)

European University Institute - Florence School of Regulation ( email )

Florence
Italy

MIT Energy Initiative ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Leonardo Meeus

European University Institute ( email )

Fiesole, Tuscany
Italy

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

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
13
Abstract Views
71
PlumX Metrics