Price-Responsive Prosumers in Transmission-Constrained Power Markets: Pricing, Investment, and Social Welfare

Abstract

The emergence of prosumers with renewable distributed energy resources has led to a paradigm shift in the electricity market. We formulate a complementarity problem to analyze a transmission-constrained power market in the presence of price-responsive prosumers who invest in photovoltaics (PVs) coupled with battery storage under two pricing schemes: net metering and net billing. Our study has three main findings. First, both investments in PVs and transmission tariffs are greater under net metering than under net billing over the range of PV capital costs. Second, the prosumer investments in PVs increase when coupled with battery systems under both pricing schemes. Third, the total social surplus under net billing tends to be larger than that under net metering. Moreover, the gap in the total social surplus between the pricing schemes widens when battery capacities are larger. Overall, we find that net billing could be a more efficient regulatory scheme, possibly avoiding over-investment in PVs.