Restructuring Revisited Part 2: Coordination in Electricity Distribution Systems

Abstract

This paper addresses the mechanisms needed to coordinate vertically and horizontally disaggregated actors in electricity distribution systems. The mechanisms designed to coordinate planning, investments, and operations in the electric power sector were designed with minimal participation from either the demand side of the market or distributed energy resources (DERs) connected at distribution voltages. The emergence of DERs is now animating consumers and massively expanding the number of potential investors and participants in the provision of electricity services. We highlight how price signals-the primary mechanism for coordinating investments and operations at the transmission level-do not adequately coordinate investments in and operations of DERs with network infrastructure. We discuss the role of the distribution system operator in creating cost-reflective prices, and argue that the price signals governing transactions at the distribution level must increasingly internalize the cost of network externalities, revealing the marginal cost or benefit of an actor's decisions. Price signals considered include contractual relationships, organized procurement processes, market signals, and regulated retail tariffs. This paper is the second part of a two-part series on competition and coordination in rapidly evolving electricity distribution systems.executing least cost, security-constrained dispatch of generation and typically face inefficient retail tariffs as opposed to market-determined prices. Thus, the emergence of DERs is challenging the structures historically used to coordinate investments in power system infrastructure in the medium and long term, and to coordinate supply and demand to ensure reliable operations of power systems in real time.During the wave of restructuring that swept through the electricity industry in the 1980s, 1990s, and 2000s, regulators established or sanctioned market constructs in order to ensure efficient pricing and the development of an efficient mix of transmission and generation assets in the short and long run (European Commission, 2009;FERC, 1999; P. L. Joskow, 1996). Today, the emergence of DERs is spurring regulators to engage in analogous debates over how to ensure the efficient utilization of and investment in both DERs and the system's conventional suite of network, generation, demand, and storage resources. Existing industry structures need to be revisited once again, to guarantee that they do adequately achieve these goals. This is the second paper in a two-part series that explores the implications of decentralization and digitization for competition and coordination in electricity distribution systems. Part 1 analyzes the economic characteristics of the distribution-level roles required for efficient planning and operation of the power system and the implications of these characteristics for industry structure, competition, market development, and economic efficiency. Part 2 (this paper) analyzes the pricing mechanisms and institutional arrangements needed to coordi...

Optimal grid tariffs with heterogeneous prosumers

“…It measures the degree of correlation between the timing of consumption and the timing of DPU production. 4 When perfectly correlated, everything that is produced by the PV installation is consumed at the place of production. On the other hand, when ϕ = 0, all the decentralized production is exported to the grid.…”

“…Since an efficiency-inducing uniform tariff is not feasible, let us consider a secondbest uniform Coasian tariff under a net purchasing scheme that ensures the DSO can recoup its costs and minimizes the total cost calculated in (4). In other words, we look for (r m , r x ) that solves the problem:…”

Digitalization of the electricity infrastructure: a key enabler for the decarbonization and decentralization of the power sector

“…Research on distribution locational marginal pricing (DLMP), that is LMP applied to distribution network users, is ongoing (Caramanis et al, 2016). Current practice shows, however, that most generators and loads connected to distribution networks are allowed to access the grid up to their maximum connection capacity, irrespective of the conditions of the grid, and pay a network charge that is based on average costs (Burger et al, 2019a;Burger et al, 2019b;CEER, 2020a;CEER, 2020b). This charge is typically the same for every user connected to the same voltage level, with the same connection capacity and part of the same user class (e.g., residential users, small businesses and so on).…”

“…Robert Schuman Centre for Advanced Studies Working Papers had to replace hierarchies and direct orders. More recently, the integration of markets at the supranational level, the penetration of variable renewable energy sources (vRES) in the generation mix, the deployment of DERs, the activation of smaller energy consumers 23 and the blurring of the boundaries between the different energy sectors and vectors pose new challenges and call for the establishment of additional coordination mechanisms that were not anticipated during the liberalization era (Burger et al, 2019b; see Section 7 for more on this).…”

“…Discussion of these issues and challenges, both at the academic and institutional level, is ongoing (MIT, 2016;Burger et al, 2019a;Burger et al, 2019b;CEER, 2019b). A comprehensive and detailed analysis is beyond the scope of this chapter.…”