Recovering fixed costs in the presence of prosumers

Abstract

The existence of prosumers who concurrently produce and consume electricity with distributed renewable resources such as photovoltaic generation has been viewed as an effective way of fortifying grid resilience and enhancing sustainability. However, prosumers’ self-consumption is impacted by how surplus electricity is priced when feeding it into the grid. From the perspective of fixed cost recovery, this study compares market outcomes when their transactions with the grid are subject to net-metering and net-billing policies considering both the wholesale and retail markets. Under the net-billing policy, prosumers may face a power price lower than the retail rate or the wholesale price when selling their surplus energy into the grid. Compared to the benchmark case, where prosumers are subject to the same price signals as conventional consumers and producers, prosumers would over-consume under the net-billing case. The net-billing policy converges to the net-metering policy when prosumers purchase power from the grid. The analysis also finds that the net-metering policy can result in more wealth transfer from conventional producers and consumers to prosumers when compared to the net-billing policy.