Network tariff design with flexible customers: Ex-post pricing and a local network capacity market for customer response coordination

Nicolás Morell-Dameto, José Pablo Chaves-Ávila, Tomás Gómez San Román, Pablo Dueñas-Martínez and Tim Schittekatte

Energy Policy, 2024, vol. 184, issue C

Abstract: This paper assesses the performance of differently implemented forward-looking network tariff designs in a future with many flexible customers. Theoretically, forward-looking approaches provide more cost-reflective signals than historical accounting approaches; they reveal to customers the trade-off between consuming more flexibly and long-term network expansion costs. We test forward-looking network tariff designs with higher locational differentiation, potentially leading to increased cost-reflectivity. However, we observe that if large shares of customers synchronize their responses to ex-ante-determined highly time-varying and locational-specific network charges, the peak-shifting effect materializes. Consequently, reinforcements occur earlier than envisioned. This scenario is plausible in an electrified and automatized future. Regulators should acknowledge this potential issue and consider to what extent respecting the predictability principle can offset economic efficiency in such a context. Ex-post pricing aligns network charges with long-term incremental network costs. But ex-post pricing has downsides, such as lower predictability for customers. To increase predictability, we propose and test an innovative coordination mechanism in a case study. The coordination mechanism is a local network capacity market where customers book their expected network capacity usage in a competitive framework. Retailers/aggregators are foreseen as key actors translating complex tariffs into diverse products according to customers’ flexibility and risk aversion.

Keywords: Distribution network charges; Forward-looking incremental charges; Locational granularity; Ex-post pricing; Customer response coordination; Local network capacity market (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301421523004925
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:184:y:2024:i:c:s0301421523004925

DOI: 10.1016/j.enpol.2023.113907

Access Statistics for this article

Energy Policy is currently edited by N. France

More articles in Energy Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().