Recovering Fixed Costs in the Presence of Prosumers

29 Pages Posted: 29 Dec 2021

See all articles by Yihsu Chen

Yihsu Chen

University of California, Santa Cruz - Department of Technology Management

Makoto Tanaka

National Graduate Institute for Policy Studies (GRIPS)

Ryuta Takashima

Tokyo University of Science

Abstract

The existence of prosumers who possess distributed renewable resources has been viewed as an effective way of fortifying grid resilience and enhancing sustainability. However, the prosumers’ self-consumption is impacted by how surplus electricity is priced when feeding into the grid. From the perspective of fixed cost recovery, we compare market outcomes when their transactions with the grid are subject to a net-metering and a net-billing policy considering both the wholesale and retail markets. Under the net-billing policy, prosumers may face a power price lower than the retail rate or the wholesale price when selling their surplus energy into the grid. Compared to the benchmark case, where prosumers are subject to the same price signals as conventional consumers and producers, prosumers would then over-consume under the net-billing case. The net-billing policy converges to the net-metering policy when prosumers purchase power from the grid. We find that the netmetering policy results in a wealth transfer from conventional producers and consumers to prosumers when compared to the benchmark. This would likely lead to inefficiency in the long run by inducing too many prosumers.

Keywords: Prosumers, Retail and wholesale markets, Net-metering

Suggested Citation

Chen, Yihsu and Tanaka, Makoto and Takashima, Ryuta, Recovering Fixed Costs in the Presence of Prosumers. Available at SSRN: https://ssrn.com/abstract=3995935 or http://dx.doi.org/10.2139/ssrn.3995935

Yihsu Chen (Contact Author)

University of California, Santa Cruz - Department of Technology Management ( email )

Santa Cruz, CA
United States

Makoto Tanaka

National Graduate Institute for Policy Studies (GRIPS) ( email )

7-22-1 Roppongi, Minato-ku
Tokyo, Tokyo 106-8677
Japan

Ryuta Takashima

Tokyo University of Science ( email )

2641 Yamazaki
Noda-shi, Chiba
Japan

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