Limits of traditional distribution network tariff design and options to move beyond

Last modified: March 17, 2019


• With more consumers installing solar PV panels, it makes sense to depart from the historical practice of volumetric distribution network tariffs with net-metering.

• However, regulators face many practical difficulties when redesigning the distribution network tariff design. Typically, there is a trade-off between cost-reflectiveness and fairness.

• We illustrate the cost-reflectiveness versus fairness trade-off and we find that some cost-reflectiveness can be sacrificed to limit the distributional impact resulting from tariff redesign.

• However, this works only up to a certain point without compromising grid cost recovery. If grid costs are mainly sunk, and cost-reflective charges are hard to implement, then smaller passive consumers are always worse off – tools other than ‘standard tariff options’ are needed to keep distributional impacts under control while limiting distortions.