Chapter 13 - Distributed Generation and the Regulation of Electricity Networks

Abstract

This chapter focuses on the effects of distributed generation (DG) on the electricity network. It examines the role of distribution network regulation for the integration of DG. It provides an overview of DG, its definition, status, and drivers. It also explains why DG is not just a generation issue, but will affect the electricity network and is therefore something to be dealt with by network regulation. It discusses how the network effects of DG influence the DNO under different regulatory regimes and provides an overview of coordination problems between DNO and DG plants. It presents a number of approaches to incentivize the DNOs to connect DG to its network. It is often argued that electricity generation close to consumers can reduce electricity network costs. This requires that DG plants are integrated into network operation and there will be many cases where the network needs to adapt to DG, incurring additional costs. Even in cases where the overall benefits of DG are positive, additional network costs clearly represent a disincentive for network operators to connect DG plants to their grid. Distribution network operators (DNOs) and the regulatory framework in which they operate play a central role in integrating and facilitating DG plants. This refers both to the incentives of DNOs to connect DG plants and to the coordination problem between DNO and DG. The regulatory framework essentially rests on two pillars: first, economic regulation of revenues or profits and, second, the approach toward vertical unbundling of the networks and the competitive businesses. Both have a potentially strong impact on the efficient integration of DG.