Unlocking the potential of rooftop solar panels: An incentive rate structure design

Abstract

With the continuous maturity of distributed generation technology, rooftop solar panels have come to play an increasingly critical role in the construction of future energy systems. However, there remains an open question as to how to design adequate rate structure and provide proper incentives for distributed solar production. In this paper, we propose an incentive rate structure for rooftop solar panels to fairly unlock the potential of such distributed energy resources. The interaction of residential consumers and utilities is formulated as a tri-level optimization model to evaluate the impact of the rate structure design on the welfare transfer and investment behavior of residential consumers. An incentive rate structure is designed in which the supply-side effects of rooftop solar panel investment are considered by explicitly modeling wholesale market dynamics. Contrary to conventional belief, we indicate that the integration of rooftop solar panels can increase the expected profits of the utility company in some usual cases. Case studies demonstrate that through adequate rate structure design, the market operator can achieve the established social goals while balancing the welfare transfer effect among different market entities. Hopefully, our work can provide novel insights and a theoretical reference for the relevant policy design.