Electricity Pricing, Distribution Networks and Utilities - A Case for MCDM Approach Using ANP ?

Abstract

With changes in electricity grids relating to sourcing and trading of electricity, tariff design will be key to establishing the new forms of business for stakeholders. In transition economies facing major challenges in technology, business environment and regulatory control regimes, MultiCriteria Decision Making (MCDM) methods of electricity tariff design are needed to select appropriate tariff design. Using a coevolutionary frame of reference to determine the broad class of change drivers shaping electricity utility business, a value chain formalism is first developed to help understand how tariff design should be taken up as a multi-objective problem. It illustrates how innovative utility business models will be driving value creation and delivery in the electricity supply chain while electricity tariff design will provide the value capture interface. The paper proposes an MCDM framework using Analytic Network Process (ANP) in electricity tariff design for distribution networks to guide regulators and policy makers. Tariff design using ANP offers a perspective tool that can adapt both objective and subjective assessments of tariff structures. Unlike most of the mathematical or accounting approaches usually adopted which require quantitative data relating to technical and financial performance, ANP allows interdependent subjective parameters to be incorporated in the tariff design process.