Employing cost sharing to motivate the efficient implementation of distributed energy resources

We consider the design of cost-sharing policies to motivate electricity distribution utilities to manage the costs of distributed energy resource (DER) projects. The optimal share of realized cost savings (s) that is awarded to the utility takes a relatively simple form in certain settings. More gen...

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Bibliographic Details
Published in:Energy economics 2019-06, Vol.81, p.974-1001
Main Authors: Brown, David P., Sappington, David E.M.
Format: Article
Language:English
Subjects:
Cost control
Cost engineering
Cost reduction
Cost sharing
Distributed energy resources
Distributed generation
Electric power distribution
Electric utilities
Electricity
Electricity pricing
Energy costs
Energy economics
Energy management
Energy policy
Energy resources
Energy sources
Procurement
Regulation
Savings
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Summary:We consider the design of cost-sharing policies to motivate electricity distribution utilities to manage the costs of distributed energy resource (DER) projects. The optimal share of realized cost savings (s) that is awarded to the utility takes a relatively simple form in certain settings. More generally, s can vary with the prevailing environment in subtle and sometimes counterintuitive ways. For instance, s may increase as cost savings become less onerous for the utility to secure. Gains from affording the utility a choice among cost-sharing policies typically are minimal. •We investigate the role of cost-sharing in the deployment of distributed energy resources.•Cost-sharing policies can motivate utilities to reduce costs, while securing savings for consumers.•The optimal cost sharing policy varies depending on the prevailing environment.•Expected costs can increase considerably if simple rules of thumb are applied to define the degree of cost-sharing.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2019.05.012