On the efficiency of connection charges under renewable integration in distribution systems

Abstract

The economic efficiency of two-part retail electricity tariffs in the presence of renewable resources in the distribution system is analyzed. Two integration models are considered: (i) a centralized model involving a regulated retail utility who owns the resources as part of its generation portfolio, and (ii) a decentralized model in which each consumer individually owns and operates the resources behind the meter and is capable of selling surplus electricity back to the retailer in a netmetering setting. The structure of the optimal two-part tariffs is obtained. For both integration models, it is shown that, under two-part tariffs, renewable resources generally improve efficiency and consumer surplus. In contrast, under linear tariffs, the integration of renewable resources by consumers may lower both consumer surplus and social welfare.