On the Optimal Design of Distributed Generation Policies: Is Net Metering Ever Optimal?

David Brown and David Sappington

No 2014-12, Working Papers from University of Alberta, Department of Economics

Abstract: Electricity customers who install solar panels often are paid the prevailing retail price for the electricity they generate. We show that this "net metering" policy typically is not optimal. A payment for distributed generation (w) that is below the retail price of electricity (r) will induce the welfare-maximizing level of distributed generation (DG) when centralized generation and DG produce similar (pollution) externalities. However, w can optimally exceed r when DG entails a substantial reduction in externalities. We demonstrate that the optimal DG policy varies considerably as prevailing production technologies change and that a restriction to net metering policies can both reduce aggregate welfare and have substantial distributional effects.

Keywords: electricity pricing; distributed generation; net metering (search for similar items in EconPapers)
JEL-codes: L11 L50 L94 Q40 Q58 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2014-10-01
New Economics Papers: this item is included in nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2014_012

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