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Illustration of two-part tariff rate design and corresponding point of grid defection for the low demand customer in high fixed charge scenario
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The cost declines of solar and storage technologies have led to concerns about customers disconnecting from utility service and self-supplying electricity. Prior research addressing this issue focused on average electricity tariffs, solar profiles, and demand without considering detailed customer heterogeneity. This paper fills the gap by analyzing...
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... illustrate this, Figure 1 sets out a hypothetical choice faced by two customers over how to meet their electricity needs. Both customers have inelastic demand for electricity, but one customer has low electricity demand and one has high electricity demand (red lines in Figure 1). ...
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... illustrate this, Figure 1 sets out a hypothetical choice faced by two customers over how to meet their electricity needs. Both customers have inelastic demand for electricity, but one customer has low electricity demand and one has high electricity demand (red lines in Figure 1). Each customer can either buy grid electricity from their utility, or they can install a solar/storage system and defect from the grid. ...
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... customer can either buy grid electricity from their utility, or they can install a solar/storage system and defect from the grid. The cost of a solar/storage system is primarily upfront capital costs, and if the size of the system scaled linearly with a customer's consumption then this results in a flat average cost curve (gold lines in Figure 1). On the other hand, grid electricity is paid for according to a simple two-part tariff with a fixed fee (blue dots in Figure 1) and a marginal variable charge (blue dashed lines in Figure 1). ...
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... cost of a solar/storage system is primarily upfront capital costs, and if the size of the system scaled linearly with a customer's consumption then this results in a flat average cost curve (gold lines in Figure 1). On the other hand, grid electricity is paid for according to a simple two-part tariff with a fixed fee (blue dots in Figure 1) and a marginal variable charge (blue dashed lines in Figure 1). As such grid electricity has a downward sloping average cost curve (blue lines in Figure 1). ...
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... cost of a solar/storage system is primarily upfront capital costs, and if the size of the system scaled linearly with a customer's consumption then this results in a flat average cost curve (gold lines in Figure 1). On the other hand, grid electricity is paid for according to a simple two-part tariff with a fixed fee (blue dots in Figure 1) and a marginal variable charge (blue dashed lines in Figure 1). As such grid electricity has a downward sloping average cost curve (blue lines in Figure 1). ...
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... the other hand, grid electricity is paid for according to a simple two-part tariff with a fixed fee (blue dots in Figure 1) and a marginal variable charge (blue dashed lines in Figure 1). As such grid electricity has a downward sloping average cost curve (blue lines in Figure 1). Figure 1 depicts two rate designs to illustrate how changing the average cost curve of grid electricity can drive grid defection. ...
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... such grid electricity has a downward sloping average cost curve (blue lines in Figure 1). Figure 1 depicts two rate designs to illustrate how changing the average cost curve of grid electricity can drive grid defection. The first rate design (on the left) has a low fixed fee and a high variable charge. ...
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Developing a regional power system to achieve a high level of integration of national systems requires sufficient development of the regional transmission grid. This is possible only with appropriate schemes for the complete cost–benefit analyses, and cost allocation of these transmission investments, which plays a critical role in the selection of...
Citations
... Using stylized models, Gautier et al. [14] concludes that netmetering decreases the payment from prosumers, which is cross-subsidized by the higher bills of conventional consumers. More recently, Gorman et al. [15] compare grid costs to offgrid costs of more than 2,000 utilities in the U.S. and find that network defection could increase from 1% to 7%, with 3% in the Southwest region and California and 7% in Hawaii. In Brown and Sappington [16], they show theoretically that for a vertically-integrated utility, net-metering is inferior to policies that compensate prosumers based on the "value of solar"; namely, the marginal value to reduce the utility's generation, transmission and distribution cost, as well as the reduction of air pollutant emissions. ...
... However, we state below that under mild conditions, the mapping is a singleton. Lemma 2: With the inverse demand functions as in (1) and (2) and under Assumption 1, for any given (τ b , τ s ) with τ b ≥ 0 and τ s ≤ τ b , an optimal solution of the optimization problem in (15) exists. In addition, the vectors d, l and the quantity z s − z b in such an optimal solution are all unique. ...
... With τ b * = τ s * = 0, as argued in the proof of Proposition 3, the system of equations (19) always has a solution, which will make the B function equal to zero; hence, they together form an optimal solution of the BLP formulation, which can be easily seen to be a globally optimal solution of the MPEC formulation. Obtaining such a solution can be done in two steps: first, solve the lower-level market equilibrium (either by solving a complementarity problem or an optimization problem as in (15), with (τ b , τ s ) = (0, 0); second, solve the linear system equations (19). Both steps can now be done with efficient algorithms since no non-convex problems are involved. ...
Distributed renewable resources owned by prosumers can be an effective way to strengthen the resilience of the grid and enhance sustainability. However, prosumers serve their own interests, and their objectives are unlikely to align with that of society. This paper develops a bilevel model to study the optimal design of retail electricity tariffs considering the balance between economic efficiency and energy equity. The retail tariff entails a fixed charge and a volumetric charge tied to electricity usage to recover utilities' fixed costs. We analyze solution properties of the bilevel problem and prove an optimal rate design, which is to use fixed charge to recover fixed costs and to balance energy equity among different income groups. That is, the first-best policy is to leave the wholesale power market intact; any recovery based on a volumetric principle is likely to be inefficient. This suggests that programs similar to CARE (California Alternative Rate of Energy), which offer lower retail rates to low-income households, are unlikely to be efficient, even if they are politically appealing.
... More recent work has been done to understand how end-customers might prioritize various end-uses [41,42], but it has remained challenging to implement such sensitivities in PVESS analysis due to the need to have sufficiently disaggregated demand profiles. A subset of this literature has also evaluated PVESS capability to serve end-consumers with a wider geographic coverage, though the lens of grid defection [43][44][45]. Hittinger et al find that grid defection is cost prohibitive for the customer when relying on BTM PVESS, results that are corroborated by Gorman et al and Hanser et al under a variety of scenarios. A few studies find that adding BTM fossil-fuel based systems could make grid defection more likely [46]. ...
... Specifically, the broadly discussed possibility of grid defection is becoming more realistic than ever and must be addressed by policy makers and all relevant stakeholders. 1,2 Grid defection refers to the physical disconnection of consumers from the electric grid, and may occur when generating power from distributed sources is cheaper than consuming it from the grid. For instance, if a consumer pays a high monthly fee to the utility regardless of its actual consumption from the grid, and in addition may generate power using low-cost local generators, he/she may choose to disconnect. ...
... Although recent reports suggest massive grid expansions to support renewable energy integration [10][11][12] whose global cost is estimated at hundreds of billions of dollars annually, 13 grid defection is threatening the cost recovery of such projects. 1,2 For example, if massive grid expansions are needed to support new solar and wind power plants [10][11][12] , such projects may be considerably delayed if the cost of new infrastructure rises, and electric utilities cannot make a profit. Additional possible adverse effects of grid defection are price inflation and economic inequality. ...
... The first approach typically uses system dynamics models to study how the adoption of DERs, and in particular solar energy and batteries, may affect the cost of electricity, which in turn leads to additional DERs adoption 14,[18][19][20][21] The latter approach solves an optimization problem to find the portion of consumers for whom it would be both profitable and technically feasible to defect from the grid. 1,2,[22][23][24] These approaches ignore either the mutual influence of the consumers on one another, in the case of optimization-based formulations, or the heterogeneity of the consumers, in the case of dynamic modeling. Consequently, they largely overlook the conflicting interests among different consumers. ...
Decreasing costs of distributed generation and storage, alongside increasing network charges, provide consumers with a growing incentive to defect from the main grid. On a large scale, this may lead to price inflation, hindrance of the energy transition, and even a “death spiral” – a domino effect of disconnections. Here, we develop a game-theoretic framework that demonstrates how conflicting interests among consumers — an aspect that previous studies overlooked — may lead to complex dynamics of grid defection. Our results reveal that although individual consumers benefit from staying connected at the distribution level, the defection of small energy communities from the grid may lead to the defection of larger communities. We also demonstrate that centralized design approaches may lead to inefficient outcomes, e.g., redundant grid expansions, because of the inherent inability to predict potential defections. However, we indicate how, by properly incorporating defection considerations into the grid’s design, social welfare can be improved.
... In recent time, the modern power system complexity has increased due to integration of renewable energy sources (RES) into the power system. In the modern world, electricity plays an essential role in the evolution of the industrialization process, and for this purpose, the main source of energy was conventional generation, i.e., thermal, furnace oil, and gas [1]. The thermal power plants are used as base-load plants that are independent of weather variations and can become operational whenever required. ...
The rapid utilization of electricity has forced the stability of the power system for continuous operation. Due to difference in demand and generation, the frequency reference point changes that needs to be restored to its locus point for the stable operation of the power system. Therefore, a novel efficient control design is propounded to counter the phenomena of load frequency control. The designing of cascaded fractional model predictive controller coupled with fractional-order PID controller (CFMPC-FOPID) is designed for an efficient response of the power system under load disruption and system parameter variations. The controller is optimized by sooty tern optimization algorithm to identify the optimal parameters of the controller. The controller is tested under power mixing of renewable energy sources (i.e., PV and wind) and under varying load scenarios in multiarea hybrid power system. The proposed controller has effectively handled the frequency disruption under distinct load change by stabilizing it in 1.34 sec, 0.60 sec, and 0.41 sec for area-1 with an average time of 0.78 sec, and for area-2, the stabilizing time is 1.40 sec, 0.89 sec, and 0.56 sec with an average time of 0.95 sec, whereas the average time for MPC/PI, DSA-FOPID, GWO: PI-PD, and SCA: FOPI-FOPID is 7.67 sec, 4.68 sec, 1.77 sec, and 4.72 sec, respectively, for area-1 and 6.47 sec, 5.13 sec, 3.45 sec, and 5.02 sec, respectively, for area-2. The outcome result justifies the superiority of the studied technique.
... inexpensive than coal-fired, gas, and diesel generation on a levelized cost basis (Doorga et al., 2022). The 51 heterogeneity of electricity customers will affect whether they disconnect from the grid with distributed 52 generation (DG) schemes (Gorman et al., 2020), i.e., grid defection. Users with low consumption and who 53 are willing to accept less reliability can potentially defect from the grid (Gorman et al., 2020); other DG 54 owners will remain in the grid coexisting with centralized systems. ...
... The 51 heterogeneity of electricity customers will affect whether they disconnect from the grid with distributed 52 generation (DG) schemes (Gorman et al., 2020), i.e., grid defection. Users with low consumption and who 53 are willing to accept less reliability can potentially defect from the grid (Gorman et al., 2020); other DG 54 owners will remain in the grid coexisting with centralized systems. 55 ...
The rapid fall of photovoltaic generation and battery storage costs can pave the way for future distributed power systems. However, transitioning from centralized to distributed systems has economic implications for different power sector stakeholders: incumbent energy firms, new distributed generation investors, and consumers. Consumers can significantly increase demand by adopting electric transport, a crucial component of decarbonization. In turn, investors and firms will need to provide the capital and operating capability to supply more power, even for self-consumption. In this paper, we develop a methodology to assess the future average price of electricity for two fundamentally different systems: one based on utility-scale projects and another based on distributed generation. We also evaluate how prices affect the financial benefits of energy sector investors and transport users that result from transport electrification. We apply the methodology to Costa Rica's transport electrification objectives, a middle-income country with vast renewable generation capacity with pledges to reach net-zero emissions by 2050. We find that the future unit costs of solar and wind generation with energy storage infrastructure affect electricity prices more than other uncertainties. In turn, prices have a high correlation with transport benefits. We also find that low discount rates produce high benefits and low electricity prices.
... In reality, more elaborate engineering models considering varying weather and electricity consumption profiles need to be deployed to dimension the batteries and solar PV in detail. Examples can be found in the papers by Hittinger and Siddiqui (2017) and Gorman et al. (2020). ...
The need for the redesign of electricity end user rates when faced with the increasing adoption of behind-the-meter (BTM) technologies, such as solar PV and batteries, has been well documented in the context of liberalised power sectors. This paper focusses on rate design for North African utilities. Applying a game-theoretical model, we illustrate that differences in regulation, infrastructure, and the socio-economic context justify a tailored analysis. We show that with more uptake of BTM technologies, the popular volumetric increasing block tariff result in a regulatory trilemma between equity, cost recovery for distribution and supply companies (DISCO), and cost recovery for the single buyer entity (SBE). We also find that an investor-owned DISCO is more exposed to cost recovery issues than its counterpart in geographies with retail competition. We recommend transitioning to an end user rate with increased differentiated fixed charges and warn that merely revising rates might not be enough; wider reforms are needed to ensure an equitable and efficient energy transition.
... Using stylized models, Gautier [14] concludes that net-metering decreases the payment from prosumers, which is cross-subsidized by the higher bills of conventional consumers. More recently, Gorman et al. [15] compare grid costs to off-grid costs of more than 2,000 utilities in the U.S. and find that network defection could increase from 1% to 7%, with 3% in the Southwest region and California and 7% in Hawaii. However, little attention was given to examine the impact of retail tariffs on the energy equality among different income groups in the presence of prosumers. ...
... However, we state below that under mild conditions, the mapping is a singleton. Lemma 2: With the inverse demand functions as in (1) and (2) and under Assumption 1, for any given (τ b , τ s ) with τ b ≥ 0 and τ s ≤ τ b , an optimal solution of the optimization problem in (15) exists. In addition, the vectors d, l, g and the quantity z s − z b in such an optimal solution are all unique. ...
... Remark 1: With τ b * = τ s * = 0, as argued in the proof of Proposition 3, the system of equations (18) always has a solution, which will make the B function equal to zero; hence, they together form an optimal solution of the BLP formulation, which can be easily seen to be a globally optimal solution of the MPEC formulation. Obtaining such a solution can be done in two steps: first, solve the lower-level market equilibrium (either by solving a complementarity problem or an optimization problem as in (15), with (τ b , τ s ) = (0, 0); second, solve the linear system equations (18). Both steps can now be done with efficient algorithms since no non-convex problems are involved. ...
Distributed renewable resources owned by prosumers can be an effective way of fortifying grid resilience and enhancing sustainability. However, prosumers serve their own interests and their objectives are unlikely to align with that of society. This paper develops a bilevel model to study the optimal design of retail electricity tariffs considering the balance between economic efficiency and energy equity. The retail tariff entails a fixed charge and a volumetric charge tied to electricity usage to recover utilities' fixed costs. We analyze solution properties of the bilevel problem and prove an optimal rate design, which is to use fixed charges to recover fixed costs and to balance energy equity among different income groups. This suggests that programs similar to CARE (California Alternative Rate of Energy), which offer lower retail rates to low-income households, are unlikely to be efficient, even if they are politically appealing.
... Economic preferences (life cycle cost, economies of scale, and net present value) can help in investor's and the government's decision-making process in microgrids [215]. Moreover, some consumers can decide to go off-grid because installing PV and BES serves as a cheaper option compared to the energy supplied from the network [216]. Different pricing can be proposed for consumers with installed distributed renewable energy sources in order to achieve fairness and efficiency: conventional tariff, flat-rate tariffs, ToU tariff, RT pricing, and demand charge tariff [217]. ...
The possibility of onsite production and flexible consumption is transforming consumers from passive users to active service providers in power systems with the large share of renewable energy sources. The prosumer-centric paradigm brings diverse possibilities by introducing real-time (RT) pricing, enabling easy and fast change of the supplier, creating opportunities for aggregation, enabling local energy production and local energy exchange, as well as the provision of ancillary services. The paper brings a comprehensive review of the evolution of the diverse options for prosumer to exploit their potential. It starts with the analysis of models and opportunities for a single end-user who decided to invest in Photovoltaic (PV), electric vehicles, and flexible devices. Aside from the review, the paper challenges the logic of the prosumer responding to dynamic prices and providing power system flexibility and compares it with the logic of lowering only their electricity bill. It further analyses different types of aggregation, such as energy communities or microgrids, combined market participation with RES, but also decentralization models designed to stimulate internal energy exchange and solve network problems locally. Finally, it discusses the possibility of providing service to both Transmission and Distribution System Operator and the complexity such coordination requires when procuring flexibility services from resources connected to the distribution network or aggregated prosumers. In addition to a comprehensive review and discussion, the paper brings easy-to-understand models and belong results for the reviewed cases of a) single prosumer flexibility, b) aggregated multiple flexible prosumers, c) energy community with the possibility of peer-to-peer trading.
... In reality, more elaborate engineering models considering varying weather and electricity consumption profiles need to be deployed to dimension the batteries and solar PV in detail. Examples can be found in the papers by Hittinger and Siddiqui (2017) and Gorman et al. (2020). ...
The need for the redesign of electricity end user rates when faced with the increasing adoption of behind-the-meter (BTM) technologies, such as solar PV and batteries, has been well documented in the context of liberalised power sectors. This paper focusses on rate design for North African utilities. Applying a game-theoretical model, we illustrate that differences in regulation, infrastructure, and the socio-economic context justify a tailored analysis. We show that with more uptake of BTM technologies, the popular volumetric increasing block tariff result in a regulatory trilemma between equity, cost recovery for distribution and supply companies (DISCO), and cost recovery for the single buyer entity (SBE). We also find that an investor-owned DISCO is more exposed to cost recovery issues than its counterpart in geographies with retail competition. We recommend transitioning to an end user rate with increased differentiated fixed charges and warn that merely revising rates might not be enough; wider reforms are needed to ensure an equitable and efficient energy transition.
... It has been shown in [41] that the building can benefit from the available installed wind and solar capacity efficiently in both on-and off-grid modes, and it has been shown that the majority of building load is supplied by RESs in both situations. In [61], an economic analysis is performed to show the effect of electricity tariffs on the decision of the home owner to stay connected with the grid or operate in off-grid mode. ...
... In Table 7, the papers that have concerned the large-number integration models are mainly grouped as the building-tied structures (i.e., Figure 3b). Some of the articles benefited from data driven methods for their integration [56,58,61], and focused on the exploring the different scenarios of flexibility that could be provided by ABs. The other group [44] utilised the thermodynamic models for large-scale integration. ...
New advances in small-scale generation and consumption technologies have shifted conventional buildings’ functionality towards energy-efficient active buildings (ABs). Such developments drew the attention of researchers all around the world, resulting in a variety of publications, including several review papers. This study conducts a systematic literature review so as to analyse the concepts/factors enabling active participation of buildings in the energy networks. To do so, a relatively large number of publications devoted to the subject are identified, introducing the taxonomy of control and optimisation methods for the ABs. Then, a study selection methodology is proposed to nominate potential literature that has investigated the role of ABs in the energy networks. The modelling approaches in enabling flexible ABs are identified, while the potential challenges have been highlighted. Furthermore, the citation network of included papers is illustrated by Gephi software and analysed using “ForceAtlas2” and “Yifan Hu Proportional” algorithms so as to analyse the insights and possibilities for future developments. The survey results provide a clear answer to the research question around the potential flexibility that can be offered by ABs to the energy grids, and highlights possible prospective research plans, serving as a guide to research and industry.
