Electricity Tariff Design via Lens of Energy Justice

Abstract

Distributed Energy Resources (DERs) can significantly affect the net social benefit in power systems, raising concerns pertaining to distributive justice and equity. Electricity tariff and DERs share a symbiotic relationship whereby the design of the former directly impacts the economic efficiency and equity in the system. Current tariff design approaches suffer from opaque efficiency-equity trade-offs and are also agnostic of the externalities that affect both economic efficiency and equity. Therefore, this paper develops a justice-cognizant tariff design framework that improves the operational savings in the system without sacrificing distributional equity, and encompasses economic welfare, social costs of environmental and public health impacts, and socio-economic and demographic characteristics of electricity consumers. The proposed framework is based on a Single Leader Single Follower (SLSF) game incorporating a multi-objective optimization problem, and is evaluated on four different tariff structures. The SLSF game is reformulated as a Multi-Objective Problem with Equilibrium Constraints (MOPEC) and is solved by integrating the objective sum method for multi-objective optimization and Scholtes’s relaxation technique for equilibrium constraints. We compare the operational savings and equity of the proposed framework using the 11-zone New York ISO and 7-bus Manhattan power networks. The results demonstrate that justice-cognizant, and spatially- and temporally-granular tariffs ensure equity and increase the operational savings at a lower energy burden to consumers.