Revisiting Electricity Network Tariffs in a Context of Decarbonization, Digitalization, and Decentralization

Abstract

The electricity system is evolving due to three driven forces: decarbonization, digitalization, and decentralization (3 Ds). Should these three forces occur, electricity network tariffs must be revisited. In most countries, actual network charges incentivize inefficient network usage when volumetric or low granular (temporal and locational) charges are applied. This paper analyses the effect of 3 Ds on tariff design principles and proposes an efficient methodology for network tariff design that promotes efficient usage of the network as well as an equitable share of the costs for network users. The proposed network tariff consists of two components: a peak-coincident and a fixed charge. The peak-coincident forward-looking charge considers the cost of future network reinforcements required, calculated element-by-element, and assigned to customers during the peak utilization hours of each network element. Fixed charges allocate the residual part of the total network costs following equity principles. A simplified network model is used to compare the charges faced by consumers through three tariff structures: (1) a volumetric tariff, (2) a simplified version of the Spanish tariff, and (3) the proposed efficient tariff. This case study highlights the economic benefits of applying a highly granular and peak-coincident tariff structure.

Renewable Energy Use for Buildings Decarbonization Causes Inequity in Consumers? Comparative Analysis of Spain, Mexico, and Colombia

“…Analyzes Demand Term used in Australian electricity market, concludes that it produces cross-subsidies, by not taking into consideration the consumer's contribution to network peak demand, therefore, it does not send adequate price signals for network efficiency and reduce cross-subsidies. Further studies consider the convenience of dynamic and real-time access tariffs to charge consumers' demand [44] or use either a variable term based on their contribution to network peak demand and a fixed term to cover system operation residual costs [45].…”

Electricity Tariff Design in the Context of an Ambitious Green Transition

“…Several tariff design objectives can be derived based on the principle of economic efficiency (Morell Dameto et al, 2020):…”

“…A deeper knowledge of customer consumption patterns -provided by smart meter data -and their relationship with customer metrics about wealth or income, would enable better customer segmentation and granularity, allowing the design of more efficient and equitable tariffs (Morell Dameto et al, 2020).…”

Barriers for Renewable Energy Technologies Diffusion: Empirical Evidence from Finland and Poland

“…[59,60]. Lastly, it is critical to follow the fast-paced technological development of the energy sector, according to the so-called 'Energy 3Ds', which stands for decarbonization, decentralization, and digitalization [61,62]. This can be achieved by, inter alia, smart grid investments, or deployment of IoT and Blockchain for renewable energy [63][64][65][66].…”