Forward-looking dynamic network tariffs: an efficient solution for price-responsive customers

N. Morell, J.P. Chaves, T. Gómez, T. Schittekatte

In the book Incentives and digitalization for flexibility in the green transition

Danish Utility Regulator, Copenhagen, Denmark

Summary

Electricity network tariffs intend to recover network costs and adhere to economic efficiency and equity principles. Most network tariffs in real-world systems focus on cost recovery, implicitly assuming non-responsive customers. This article proposes a forward-looking dynamic network tariff that could be implemented in real-world electricity systems. First, when considering the entire network, consumers and generators must be clustered into subsystems by voltage levels, enabling the calculation of the network utilization levels; this is the so-called cascade model. After, per voltage level, the network tariff needs to be computed. The forward-looking tariff consists of a peak-coincident energy charge, which is symmetric for injections and withdrawals, a per-kWh component for energy losses, and a fixed residual network charge. This tariff design incentivizes shifting flexible loads to off-peak hours and aligns individual customer incentives with expected system benefits, reducing future network investments. In addition, the symmetric nature of the proposed tariff enables a level playing field for active customers providing flexible services. The Slovenian regulator has considered the designed tariff for future implementation. This article summarizes the findings of [1] by the same authors.

Spanish layman's summary:

Las tarifas de red eléctrica tienen como objetivo recuperar costos, incentivar la eficiencia y equidad. Este artículo propone una tarifa dinámica, que considera costes incrementales y se agrupan a los consumidores y generadores por nivel de tensión. La tarifa resulta en cargos coincidentes con los picos de utilización de la red y fomenta la respuesta de los usuarios. El regulador esloveno está considerando su implementación.

 

English layman's summary:

Electricity network tariffs aim to recover costs and incentivize efficiency and equity. This article proposes a dynamic, forward-looking tariff that clusters consumers and generators by voltage level, includes peak-coincident charges, and incentivizes customers' response. The Slovenian regulator is considering its implementation.

Keywords: Electricity tariffs, decarbonization, network tariffs, active customer response, distributed energy resources, long-term marginal costs, residual costs, electric vehicles

Editors: Meeus, L.; et al.,

ISBN: 978-87-975187-0-0

URL: https://forsyningstilsynet.dk/analyser-og-tal/analyser-og-markedsrapporter/forsyningstilsynets-antologi/incentives-and-digitalization-for-flexibility-in-the-green-transition

Published: 2024

Citation:
N. Morell, J.P. Chaves, T. Gómez, T. Schittekatte, Forward-looking dynamic network tariffs: an efficient solution for price-responsive customers, in Incentives and digitalization for flexibility in the green transition. Editors Meeus, L.; et al., . Ed. Danish Utility Regulator. Copenhagen, Denmark, 2024.

IIT-24-274L