Forward-looking distribution network charges considering lumpy investments
Govaerts, Niels Bruninx, Kenneth Le Cadre, Helene Meeus, Leonardo Delarue, Erik
Govaerts, Niels
Bruninx, Kenneth
Le Cadre, Helene
Meeus, Leonardo
Delarue, Erik
Citations
Altmetric:
Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2021
Journal
Journal of Regulatory Economics
Book
Publication Volume
59
Publication Issue
3
Publication Begin page
280
Publication End page
302
Publication Number of pages
Collections
Abstract
Many regulators are pushing for more cost-reflective distribution network charges to inform end users of the grid infrastructure costs their behavior causes. Since future investment costs can be avoided by reducing simultaneous peak loads, forward-looking, coincident peak charges are often proposed. Under the assumption of convex network costs, it has been shown that optimal charges signal long-run marginal network costs, triggering an optimal trade-off between network expansion and peak load reduction. In practice, however, network investments are lumpy, requiring engineering methods to estimate ill-defined marginal costs based on long-term peak demand forecasts. In this paper, we derive the optimal forward-looking network charge set by a social welfare maximizing regulator, endogenously considering investment lumpiness and uncertain consumer demand. While the optimal tariff still equals marginal network costs in essence, it now depends on a multitude of network- and demand-related parameters. Our results demonstrate that forward-looking network charges require accurate information on willingness to pay for peak demand, which currently is typically unknown to regulators.
Research Projects
Organizational Units
Journal Issue
Keywords
Regulators