The advent of several disruptive innovations in distributed renewable generation, battery storage, and smart meter technology is transforming the electric power industry. A rising concern of this transformation is the impact of distributed energy resources (DERs) on the financial viability of traditional regulated distribution utilities. In particular, under volumetric and net-metering tariffs, the integration of behind-the-meter DERs, including storage systems, could compromise the ability of grid operators to recover their fixed operational and capital expenditures, which leads to the so-called "death spiral" hypothesis. In this talk, we examine the role of connection charges for a regulated monopolistic retailer who serves heterogeneous consumers. We examine two DER integration models: (i) the behind-the-meter integration by consumers under a net metering tariff, and (ii) a centralized integration by the retailer. For both cases, we obtain the optimal ex-ante two-part tariff consisting of connection and volumetric charges. The structure of the optimal two-part tariff reveals how the benefits and costs of DERs are allocated optimally across consumers. While the optimal two-part tariff yields the same social welfare under the two integration models, the benefits of DER integration are distributed very differently among consumers who have different integration capabilities. Our results also show that the absence of the connection charge, rather than net-metering, is the main cause of economic inefficiency. Results from empirical studies also illustrate the potential gain for consumers when the optimal two-part tariff is adopted.
About the SmartGrid Seminar:
Our speakers will discuss exciting new ideas and technologies that are changing the electricity industry. The theme of the seminar series is on smart grids and energy systems, with speakers from academic institutions and industry. The hour-long seminars, including ample time for discussion, are held at 1:30 pm every Thursday. Open to all Stanford students, faculty and staff.
Lang Tong is the Irwin and Joan Jacobs Professor of Engineering in the School of Electrical and Computer Engineering and the Site Director of Power Systems Engineering Research Center at Cornell. He received the Bachelor of Engineering degree from Tsinghua University and Ph.D. degree from the University of Notre Dame. He was a Postdoctoral Research Affiliate at the Information Systems Laboratory, Stanford University in 1991. His current research focuses on stochastic optimization, data analytics, and economic aspects of smart grid.