Revolutionizing Residential Electricity Tariff Structure to Accommodate Distributed Energy Resources

Abstract

The global threat of climate change is spurring much research and investment into re- newable energy sources to curtail global reliance on fossil fuel derived energy sources. In the context of the electric power industry, there is a current push to figuring out how to integrate renewable sources of electricity production to offset fossil fuel produced electricity in the aggregate electricity supply. One potential solution is a decentral- ized approach of outfitting residential consumers with photovoltaic (PV) solar cells with a battery storage option. However, research suggests that there are challenges to adopting this solution under the current electricity rate environment provided by most utilities. The goal of this research is to investigate how certain reforms to elec- tricity tariff design can provide a more fitting environment to encourage decentralized renewable energy production investment removed of inefficiencies. The tariff reforms investigated in this research include transforming the electricity distribution indus- try into a transparent and fair market allowing consumers to be treated equally as producers, implementing critical peak pricing (CPP) charges to discourage peak elec- tricity grid withdrawals, and transforming volumetric cost recovery to fixed charges. By looking at the operations of a single consumer outfitted with PV solar cells and battery storage, this research analyzes the profitability of installing distributed generation with battery storage from the perspective of the consumer and the electricity provider, the impact to aggregate use of the electricity distribution network, and the presence of inefficiencies due to operation under four proposed tariff reforms. This research concludes that tariff reforms involving creating an accessible marketplace for the exchange of electricity and instituting a volumetric CPP charge as a premium during high demand hours results in a generally more fair tariff that simultaneously encourages consumer investment into renewable electricity generation and results in roughly a 13% reduction in demand during high demand hours.