Distribution network tariff design: Facilitate flexible resource under uncertain future energy scenarios

Xinhe Yang, Xiuli Wang, Zhilin Lu, Ziyang Liang, Chenghong Gu and Furong Li

Energy Policy, 2024, vol. 188, issue C

Abstract: The uncertainty embedded in low-carbon transition pathways and future energy scenarios will reshape the way of distribution network planning and operation. Flexible solutions provided by flexible resources could help distribution network operators (DNOs) to reduce network costs and risks under uncertainties. However, the current tariff paradigm neglects such contributions, which cannot generate sufficient incentives to facilitate flexible resource development. To tackle this issue, this paper first introduces an improved price control method that caps DNOs' revenue while encouraging DNOs' sustainable investment under uncertainties. A bi-level planning model is then proposed to determine the optimal investment plan and evaluate the risk reduction effect by scheduling flexible loads. Finally, a novel pricing method is proposed to derive network tariffs for existing and potential flexible loads based on their contributions to risk reduction and demonstrated in a test system. The result shows a 24% network cost reduction given by 6% DNO risk compensation rate, and 0%–43% and 1%–22% network tariff reductions for existing and future flexible demands, respectively. This evidence proves the proposed method can incentivize DNOs to well manage risks, meanwhile promote the connection and engagement of flexible loads. Regulators and DNOs are recommended to review the existing pricing framework, enhance risk management in price regulation, and explore suitable tariff designs or business models for flexible loads to cope with future uncertainties through flexibility.

Keywords: Network tariff; Load growth uncertainty; Flexible resources; Price control; Investment risk (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:188:y:2024:i:c:s0301421524000958

DOI: 10.1016/j.enpol.2024.114075

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