Electricity | Other
Cost-reflective network tariffs : experiences with forward looking cost models to design electricity distribution charges
10 July 2020

Authors: MEEUS, Leonardo; GOVAERTS, Niels; SCHITTEKATTE, Tim

To better reflect local grid conditions to consumers, many regulators are reforming their distribution network tariffs. In this literature review, we start by discussing the difference between short-run and long-run marginal pricing for distribution grids. Short-run marginal pricing is first-best but hard to implement in practice. Several authors therefore argue to that it makes sense to signal long-run marginal costs through a forward-looking charge based on a forward looking cost model. After, we compare four implementations of forward looking cost models that are currently being used in Great-Britain. Finally, we discuss the link between cost models and charge design. We formulate two conclusions. First, forward looking cost models are complex both for the regulator and the grid users. Designing cost-reflective distribution tariffs can help, but tariffs are regulatory tools with limitations. Second, we identify a gap in the literature. There is more academic work on charge design than on forward looking cost models.
logo cadmus Read it on Cadmus Download in open access

LATEST FSR PUBLICATIONS

Working Paper
The digitalisation of the energy sector is giving rise to energy data spaces that aim to support secure, interoperable, and sovereign data sharing among stakeholders. While the focus has mainly [...]
Technical Report
This report reviews evidence collected during the third year of the LIFE COASE project co-funded by the European Commission. It summarises two events held over the summer of 2025. The [...]
Policy Brief
The European Union (EU) is approaching a crucial moment in its climate and industrial strategy. As work begins on the 2026 review of the EU Emis sions Trading System (ETS), [...]

Join our community

To meet, discuss and learn in the channel that suits you best.

scroll

top