A generic economic framework for electric rate design with prosumers

Abstract

Location-varying electric rates may incentivize distributed energy resources (DERs) with lower system costs. However, the distributional impact among prosumers versus traditional consumers is not clear. This study presents a generic economic framework for evaluating novel rate designs. The study derives conditions under which large solar systems impose a higher marginal cost on the grid and examines the implication of different rate designs for cross-subsidy. Our findings suggest that location-varying rates remove all cross-subsidy effects except in the case where returns to scale in electricity production are low. In addition, location-varying rates lower the electricity bill of prosumers and consumers. Location-varying rates may better incentivize DER adoption in locations that minimize system-level costs.