Retail tariffs determine a customer’s bill for electricity consumed from the grid. Tariffs can range from simple flat rates for volumetric energy consumption to more complex arrangements like time-varying rates, inclined block rates based on tiers of consumption, demand charges for maximum use at certain periods, or others.
The interaction of DER technologies and tariff structures have a profound impact on DER customer economics, as it determines the value of avoided consumption of electricity from the grid. As a result, updating retail tariff rates for DER adopting customers can help ensure the adoption and operation of these systems are incentivized in-line with power sector policy objectives
There are a number of rate options that have been offered to reduce peak demand, increase fairness of consumer pricing, or offer environmental benefits by shifting demand to times when clean power sources can make up a larger share of generation. Some common examples are:
A static TOU divides the day into time periods and provides a schedule of rates for each period.... The price would be higher during the peak period and lower during the off-peak, mirroring the average variation in the cost of supply.... With a TOU rate, there is certainty as to what the rates will be and when they will occur.
Under a CPP rate, participating customers pay higher prices during the few days when wholesale prices are the highest or when the power grid is severely stressed.... Customers are typically notified of an upcoming “critical peak event” one day in advance.
Instead of charging a higher rate during critical events, participants are paid for load reductions (estimated relative to a forecast of what the customer otherwise would have consumed). If customers do not wish to participate, they simply pay the existing rate. There is no rate discount during non-event hours.
Participants pay for energy at a rate that is linked to the hourly market price for electricity. Depending on customer class, participants are made aware of hourly prices on either a day-ahead or hour-ahead basis. Typically, only the largest customers (above one megawatt of load) in specific regions face hourly prices.
The rate options described above can also be offered in combination to take advantage of the relative advantages of each. One common combination is CPP and TOU. The TOU component of the rate reflects the average daily variation in peak and off-peak energy prices. The CPP component during a small percentage of hours each year reflects the cost of capacity during the seasonal system peak. Together, these rates can facilitate greater energy awareness among customers and provide a greater opportunity for bill savings through a more heavily discounted off-peak rate. However, the added complexity of a combination rate design means that additional customer education is necessary for the rate to be effective and improve customer satisfaction.
Text excerpts from pages 13 - 16 of the Regulatory Assistance Project and Brattle Group: Time-Varying and Dynamic Rate Design
Retail tariffs can have a strong influence on the overall economic viability of DERs (which drives adoption) as well as what is the most profitable use case of DERs (which drives operation). More complex tariffs can better align DER adoption and operation with the needs of the power system. Tariff design can also incentivize different configurations and use of DERs; for example, TOU tariffs can be designed to incentivized DPV plus storage rather than DPV alone.
When designing tariffs, regulators need to balance the desire to encourage DER adoption and use DERs to provide system services against (1) utilities' needs for revenue sufficiency; and (2) a customer's ability to understand and reasonably respond to the tariffs.
As utilities and regulators consider these strategies, some key practical considerations to keep in mind include:
At a high level, many regulators and utilities are attempting to balance the above considerations with a desire to, among others:
Text excerpt from page 21 by NREL of: An Overview of Behind-the-Meter Solar-Plus-Storage Regulatory Design - Approaches and Case Studies to Inform International Applications
Implementing changes such as time-varying retail tariffs is a major effort that can have significant impacts on all power system stakeholders. It is important to take steps to ensure that such changes go as smoothly as possible and do not have unintended consequences for customers or utilities.