Impact of distribution tariffs on prosumer demand response

Abstract

Distributed energy resources (DERs) may enable prosumers to deliver demand response under dynamic energy pricing schemes. Facing wholesale market prices, the DER scheduling of a profit-maximising prosumer minimises the total system energy cost as well. However, regulated electricity bill components, i.a., distribution tariffs for recovering grid costs, may distort these price signals. To study the impact of distribution tariff structures on DER scheduling, we develop a short-term linear optimisation model that determines the cost-optimal DER schedule based on wholesale electricity prices and a distribution tariff. We compare five distribution tariff structures for four combinations of PV, batteries, and heat pumps, and define two metrics to characterise the results: (i) the novel ‘relative flexibility value’, which quantifies energy cost inefficiencies, and (ii) ‘rate of self-consumption’. In a case study, we show how prosumers make trade-offs between energy and distribution costs, depending on the distribution tariff structure. We describe the mechanisms through which different distribution tariff structures alter DER operations, and quantify the tariffs' impact on the system energy cost. Generally, we find that tariff types which stimulate self-consumption increase the system energy cost and vice versa. • Distribution tariffs distort the scheduling of distributed energy resources. • Prosumers trade off energy cost increases with distribution cost decreases. • Self-consumption can reduce grid interaction and related private costs. • Tariffs with high self-consumption perform low on cost-efficiency and vice versa.