EconPapers    
Economics at your fingertips  
 

Forward-looking distribution network charges considering lumpy investments

Niels Govaerts, Kenneth Bruninx, Hélène Le Cadre, Leonardo Meeus and Erik Delarue ()
Additional contact information
Niels Govaerts: KU Leuven
Kenneth Bruninx: KU Leuven
Hélène Le Cadre: EnergyVille
Leonardo Meeus: Vlerick Energy Centre
Erik Delarue: KU Leuven

Journal of Regulatory Economics, 2021, vol. 59, issue 3, No 4, 280-302

Abstract: Abstract Many regulators are pushing for more cost-reflective distribution network charges to inform end users of the grid infrastructure costs their behavior causes. Since future investment costs can be avoided by reducing simultaneous peak loads, forward-looking, coincident peak charges are often proposed. Under the assumption of convex network costs, it has been shown that optimal charges signal long-run marginal network costs, triggering an optimal trade-off between network expansion and peak load reduction. In practice, however, network investments are lumpy, requiring engineering methods to estimate ill-defined marginal costs based on long-term peak demand forecasts. In this paper, we derive the optimal forward-looking network charge set by a social welfare maximizing regulator, endogenously considering investment lumpiness and uncertain consumer demand. While the optimal tariff still equals marginal network costs in essence, it now depends on a multitude of network- and demand-related parameters. Our results demonstrate that forward-looking network charges require accurate information on willingness to pay for peak demand, which currently is typically unknown to regulators.

Keywords: Capital indivisibility; Coincident peak pricing; Electricity distribution; Forward-looking grid tariffs; Long-run marginal costs (search for similar items in EconPapers)
JEL-codes: D61 L51 L94 L97 Q41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s11149-021-09428-1 Abstract (text/html)
Access to full text is restricted to subscribers.

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:kap:regeco:v:59:y:2021:i:3:d:10.1007_s11149-021-09428-1

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/11149/PS2

DOI: 10.1007/s11149-021-09428-1

Access Statistics for this article

Journal of Regulatory Economics is currently edited by Menaham Spiegel

More articles in Journal of Regulatory Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2022-05-12
Handle: RePEc:kap:regeco:v:59:y:2021:i:3:d:10.1007_s11149-021-09428-1