Limits of traditional distribution network tariff design and options to move beyond
Title: Limits of traditional distribution network tariff design and options to move beyond
Series/Number: Policy Briefs; 2018/13; Florence School of Regulation; Energy
With more consumers installing solar PV panels, it makes sense to depart from the historical practice of volumetric distribution network tariffs with net-metering. However, regulators face many practical difficulties when redesigning the distribution network tariff design. Typically, there is a trade-off between cost-reflectiveness and fairness. We illustrate the cost-reflectiveness versus fairness trade-off and we find that some cost-reflectiveness can be sacrificed to limit the distributional impact resulting from tariff redesign. However, this works only up to a certain point without compromising grid cost recovery. If grid costs are mainly sunk, and cost-reflective charges are hard to implement, then smaller passive consumers are always worse off – tools other than ‘standard tariff options’ are needed to keep distributional impacts under control while limiting distortions.
This policy brief is based on RSCAS Research Paper No. 2018/19, titled 'Least-cost distribution network tariff design in theory and practice' by SCHITTEKATTE, Tim; MEEUS, Leonardo. Details about the assumptions, data, and formulation of the mathematical model can be found in the research paper.
Type of Access: openAccess
Initial version: http://hdl.handle.net/1814/53804