Tariff Design Issues: Approaches for Recovering Grid and System Costs
Like many regions, the European power market is experiencing a marked increase in variable renewable energy sources (VRE). Increasing the percentage of VRE requires more flexible resources, placing the emphasis on ramping and cycling capabilities versus capacity. In a workshop of the European Directorate General for Energy, Andreas Jahn recommended tariffs designed to encourage efficient energy consumption that responds flexibly to both the available energy supply and to grid capacity.
Equally challenging for regulators is tariff design for self-consumption, which is primarily in the form of solar photovoltaics (PV) and small-scale combined heat and power (CHP) generation. While a high rate of customer generation can impact the utilities’ transactional costs, the benefits are undoubtedly valuable—lower emissions, lower overall grid investments, avoided line losses, and increased system security and resilience. Thoughtful consideration and planning by regulators can ensure equitable solutions for all parties. Volumetric charges, as opposed to higher fixed charges, are most effective for promoting efficiency and optimizing system costs. Regulators may also consider time-varying charges for customer generation to encourage flexible demand.