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January 08, 2019
Brattle Economists Author Two Articles for a Special Issue of The Electricity Journal on Rate Design

Two Brattle-authored articles have been published in the October 2018 issue of The Electricity Journal.

Brattle Principals Agustin Ros and Romkaew Broehm and Principal Emeritus Philip Hanser have published an article, “Economic Framework for Compensating Distributed Energy Resources: Theory and Practice” which discusses the costing and pricing methodology that distribution utilities and policymakers should use when paying Distributed Energy Resource (DER) owners for surplus energy production. DERs refer to customer-owned (“behind the meter”) small-scale resources that are located at a distribution low-voltage system and include but are not limited to photovoltaic systems (typically rooftop solar). The authors explain that host utilities often are required to purchase excess energy produced by DERs from the owners and that many states and regulators across the country are in the process of conducting studies to determine future DER compensation policies and or to fix net-metering issues.

In the article the authors presents an economic framework that policymakers should use to determine the compensation that DERs should receive for excess energy that customers send back to the grid. The framework requires that compensation provided to DER owners be based upon the forward-looking costs that the utility avoids by buying the energy from the DER customer instead of producing the energy themselves to deliver to their customers. The authors find that setting a price ceiling that a utility pays to a DER customer at the utility’s forward-looking avoided costs will send correct economic signals to market participants. This will lead to efficient decisions vis-à-vis: customer-owned DER purchases and energy “bypass” decisions, adoption of and competition among different DER technologies, and whatever forward-looking utility distribution investments and upgrades are required to accommodate customer-owned DERs.

Brattle Principal Ryan Hledik, Associate Jake Zahniser-Word, and Research Analyst Jesse Cohen have published the article, “Storage-Oriented Rate Design: Stacked Benefits or the Next Death Spiral?” that discusses the link between behind-the-meter (BTM) storage adoption and retail rate design. The authors discuss the intricacies of storage-oriented rate design and the potential for an increase in customer adoption rate due to using a storage-oriented rate over the current rooftop solar net metering. While BTM energy storage currently only accounts for 15% of the U.S. energy storage market, adoption is poised to grow significantly by 2022.

Several factors have the ability to affect the BTM energy storage rate, including declining cost of batteries, level of consumer interest, available support for BTM storage deployments, and retail rate design. The challenge comes from identifying a rate design that serve multiple purposes: recovers costs, satisfies customers, works with emerging technologies, and allocates costs across customers in an equitable manner. The authors’ analysis of the cost-to-serve for different storage technologies and the customers’ total bill/year found that BTM storage alone is not likely to pose nearly the same threat of cost under-recovery that would be present by rooftop solar with flat rates and net energy metering (NEM).

Brattle Principal Ahmad Faruqui is a member of The Electricity Journal Editorial Board and served as editor of this issue.