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October 30, 2018
Brattle Economists Outline a System for Compensating Distributed Energy Resources in Electricity Journal Article

Brattle Principals Agustin J. Ros, Romkaew Broehm, and Phil Hanser have authored an article published in The Electricity Journal, 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.

The article, “Economic Framework for Compensating Distributed Energy Resources: Theory and Practice,” can be found on The Electricity Journal website.