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Policy Brief / Electricity

Limits of Traditional Distribution Network Tariff Design and Options to Move Beyond

Author(s): MEEUS Leonardo, SCHITTEKATTE Tim

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ABSTRACT

With more consumers installing solar PV panels, it makes sense to depart from the historical practice of volumetric distribution network tariffs with net-metering. 

However, regulators face many practical difficulties when redesigning the distribution network tariff design. Typically, there is a trade-off between cost-reflectiveness and fairness. 

We illustrate the cost-reflectiveness versus fairness trade-off and we find that some cost-reflectiveness can be sacrificed to limit the distributional impact resulting from tariff redesign. 

However, this works only up to a certain point without compromising grid cost recovery. If grid costs are mainly sunk, and cost-reflective charges are hard to implement, then smaller passive consumers are always worse off – tools other than ‘standard tariff options’ are needed to keep distributional impacts under control while limiting distortions. 

 

This policy brief is based on RSCAS Research Paper No. 2018/19, titled ‘’Least- Cost Distribution Network Tariff Design in Theory and Practice’’ by Schittekatte, T. and Meeus, L. Available at: http://cadmus.eui.eu//handle/1814/53804. Details about the assumptions, data, and formulation of the mathematical model can be found in the research paper.