The economic value of a centralized approach to distributed resource investment and operation

Juan Pablo Carvallo, Nan Zhang, Sean P. Murphy, Benjamin D. Leibowicz and Peter H. Larsen

Applied Energy, 2020, vol. 269, issue C, No S0306261920305833

Abstract: Distributed energy resources have been almost exclusively deployed and operated under a decentralized decision-making process. In this paper, we assess the evolution of a power system with centrally planned utility-scale generation, transmission, distribution, and distributed resources. We adapt a capacity expansion model to represent both centralized and decentralized decision-making paradigms under various electricity rate structures. This paper shows that a centralized planning approach could save 7% to 37% of total system costs over a 15-year time horizon using a Western United States utility as a case study. We show that centralized decision-making deploys substantially more utility-scale solar and distributed storage compared to a decentralized decision-making paradigm. We demonstrate how a utility could largely overcome the complications of decentralized distributed resource decision-making by incentivizing regulators to develop electricity rates that more closely reflect time- and location-specific, long-run marginal costs. The results from this analysis yield insights that are useful for long-term utility planning and electric utility rate design.

Keywords: Distributed energy resources; Decentralized decision-making; Electricity rate structure; Power system; Resource planning; Rooftop solar (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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DOI: 10.1016/j.apenergy.2020.115071

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