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Electric rate design for small power generators: Problems of economic efficiency and equity

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  • Mueller, R.O.
  • Nelson, S.H.

Abstract

Rate setting and the effects of rates on device control and operation are important factors affecting the sucessful integration of customer-owned small power generators (SPGs) into an electric supply grid. In this paper, we examine the conditions under which alternative rate designs and customer control strategies for SPGs can lead to cross-subsidizations and even to net losses in economic efficiency. Under most conditions, we find that some form of utility control of SPG output is needed to optimize the utility benefits of SPGs. To avoid subsidies to SPGs, utilities should either require that all SPG output be sold directly to the electric grid without any consumption locally or, alternatively, establish reasonable demand charges for backup electricity purchased by SPG customers.

Suggested Citation

  • Mueller, R.O. & Nelson, S.H., 1982. "Electric rate design for small power generators: Problems of economic efficiency and equity," Energy, Elsevier, vol. 7(10), pages 847-854.
    • Handle: RePEc:eee:energy:v:7:y:1982:i:10:p:847-854
    DOI: 10.1016/0360-5442(82)90033-0
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