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Should I stay or should I go? The importance of electricity rate design for grid defection

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Will Gorman's picture
Graduate Student Researcher Lawrence Berkeley National Lab

Will Gorman is a Graduate Student Researcher in the Electricity Markets and Policy Department at Lawrence Berkeley National Laboratory. His research focuses on the economics of distributed energy...

  • Member since 2020
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  • Feb 6, 2020
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Excited to share a new paper out in the journal Applied Energy! If you like to get wonky with electricity rate design, this paper may be for you. We’ll have it all: fixed charges, grid defection, solar, storage, reliability, and maps to tell the story. 

Currently, it is common for utilities to recover a substantial portion of fixed costs through setting variable charges above marginal costs which has adverse implications for efficiency by under-incentivizing consumption (e.g. electrification of heating or transportation) and over-incentivizing the adoption of technologies that can substitute for grid electricity (e.g. installing rooftop solar).

In this paper, we ask what if variable rates are adjusted to real time prices and fixed charges are increased to recoup the costs? We perform this calculation and compare the ‘current rates’ to a scenario we call ‘private marginal cost’ (PMC). In the PMC scenario, some customers (particularly low demand ones) might decide to install solar+storage.

Overall, we show that utilities and regulators seeking to limit rooftop solar adoption by lowering variable charges face a significant possibility that the corresponding increase in fixed charges could lead to inefficient grid defection. We find a key parameter is reliability. If users are willing participate in flexible demand programs, grid defection via solar+storage becomes much easier.

Read more details in the URL to the publication, free to download for the next month! 

Discussions
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Matt Chester's picture
Matt Chester on Feb 6, 2020

Overall, we show that utilities and regulators seeking to limit rooftop solar adoption by lowering variable charges face a significant possibility that the corresponding increase in fixed charges could lead to inefficient grid defection.

This made plenty of sense when they could 'go after' the smaller actors on the grid, the residential rooftop installations. But does the approach likely change as the decentralized generation sources grow in size, quantity, and variety?

 

And thanks for sharing this great paper, Will!

Will Gorman's picture
Will Gorman on Feb 7, 2020

That's an interesting point Matt. I think this depends on the regulatory strength of the decentralized sources.  A parallel to the paper is all the activity around CCAs in California, who when leaving the traditional IOU construct, also faced a fixed exit fee called the PCIA.  

Those larger actors had a little more power in the regulatory process than residential rooftop installers but they weren't able to avoid the fixed fee. 

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