Limits of traditional distribution network tariff design and options to move beyond

Abstract

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.