IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v39y2018i5p131-156.html
   My bibliography  Save this article

Optimal Procurement of Distributed Energy Resources

Author

Listed:
  • David P. Brown
  • David E.M. Sappington

Abstract

We analyze the optimal design of policies to motivate electricity distribution companies to adopt efficient distributed energy resources (DER) and manage associated project costs. The optimal policy often entails a bias against new DER projects and implements cost sharing when DER projects are undertaken in order to foster cost containment while limiting excessive profit for the utility. Failure to adequately tailor the degree of cost sharing to the prevailing environment can raise procurement costs substantially. The distribution company may optimally be awarded more than the cost saving it achieves.

Suggested Citation

  • David P. Brown & David E.M. Sappington, 2018. "Optimal Procurement of Distributed Energy Resources," The Energy Journal, , vol. 39(5), pages 131-156, September.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:5:p:131-156
    DOI: 10.5547/01956574.39.5.dbro
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.39.5.dbro
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.39.5.dbro?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paulo Moisés Costa, Nuno Bento and Vítor Marques, 2017. "The Impact of Regulation on a Firm's Incentives to Invest in Emergent Smart Grid Technologies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    2. David P. Brown & David E.M. Sappington, 2018. "Optimal Procurement of Distributed Energy Resources," The Energy Journal, , vol. 39(5), pages 131-156, September.
    3. Joskow Paul L., 2008. "Incentive Regulation and Its Application to Electricity Networks," Review of Network Economics, De Gruyter, vol. 7(4), pages 1-14, December.
    4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    5. Bower, Anthony G, 1993. "Procurement Policy and Contracting Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 873-901, November.
    6. Couture, Toby & Gagnon, Yves, 2010. "An analysis of feed-in tariff remuneration models: Implications for renewable energy investment," Energy Policy, Elsevier, vol. 38(2), pages 955-965, February.
    7. Ferris, Michael C. & Munson, Todd S., 2000. "Complementarity problems in GAMS and the PATH solver," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 165-188, February.
    8. Jesse D. Jenkins & Ignacio J. Pérez-Arriaga, 2017. "Improved Regulatory Approaches for the Remuneration of Electricity Distribution Utilities with High Penetrations of Distributed Energy Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    9. David Sappington, 1996. "Designing Incentive Regulation for the Telecommunications Industry," Books, American Enterprise Institute, number 52863, September.
    10. Cossent, Rafael & Gómez, Tomás, 2013. "Implementing incentive compatible menus of contracts to regulate electricity distribution investments," Utilities Policy, Elsevier, vol. 27(C), pages 28-38.
    11. David P. Brown & David E.M. Sappington, 2017. "Designing Compensation for Distributed Solar Generation: Is Net Metering Ever Optimal?," The Energy Journal, , vol. 38(3), pages 1-32, May.
    12. Ruester, Sophia & Schwenen, Sebastian & Batlle, Carlos & Pérez-Arriaga, Ignacio, 2014. "From distribution networks to smart distribution systems: Rethinking the regulation of European electricity DSOs," Utilities Policy, Elsevier, vol. 31(C), pages 229-237.
    13. William P. Rogerson, 2003. "Simple Menus of Contracts in Cost-Based Procurement and Regulation," American Economic Review, American Economic Association, vol. 93(3), pages 919-926, June.
    14. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    15. David Sappington, 1982. "Optimal Regulation of Research and Development under Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 354-368, Autumn.
    16. Crouch, Martin, 2006. "Investment under RPI-X: Practical experience with an incentive compatible approach in the GB electricity distribution sector," Utilities Policy, Elsevier, vol. 14(4), pages 240-244, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lamorlette, A., 2023. "A coupled model of global energy production and ERoEI applied to photovoltaic and wind, an estimation of net production," Energy, Elsevier, vol. 278(PB).
    2. Tooraj Jamasb and Manuel Llorca, 2019. "Energy Systems Integration: Economics of a New Paradigm," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    3. Milchram, Christine & Hillerbrand, Rafaela & van de Kaa, Geerten & Doorn, Neelke & Künneke, Rolf, 2018. "Energy Justice and Smart Grid Systems: Evidence from the Netherlands and the United Kingdom," Applied Energy, Elsevier, vol. 229(C), pages 1244-1259.
    4. Alexander Theisen & Lynne Kiesling & Michael Munger, 2022. "From Airbnb to solar: electricity market platforms as local sharing economies," Public Choice, Springer, vol. 193(3), pages 141-162, December.
    5. David P. Brown & David E. M. Sappington, 2021. "On the profitability of self‐sabotage," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 68-91, February.
    6. Lu-Miao Li, Peng Zhou, and Wen Wen, 2023. "Distributed Renewable Energy Investment: The Effect of Time-of-Use Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    7. David P. Brown and David E. M. Sappington, 2018. "Optimal Procurement of Distributed Energy Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    8. Brown, David P. & Sappington, David E.M., 2020. "Motivating the optimal procurement and deployment of electric storage as a transmission asset," Energy Policy, Elsevier, vol. 138(C).
    9. Brown, David P. & Sappington, David E. M., 2018. "Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources," Working Papers 2018-9, University of Alberta, Department of Economics.
    10. Brown, David P. & Sappington, David E. M., 2017. "Self-Sabotage in the Procurement of Distributed Energy Resources," Working Papers 2017-11, University of Alberta, Department of Economics.
    11. Tangerås, Thomas, 2020. "Competition for Flexible Distribution Resources in a ’Smart’ Electricity Distribution Network," Working Paper Series 1351, Research Institute of Industrial Economics.
    12. Butera, Giacomo & Jensen, Søren Højgaard & Clausen, Lasse Røngaard, 2019. "A novel system for large-scale storage of electricity as synthetic natural gas using reversible pressurized solid oxide cells," Energy, Elsevier, vol. 166(C), pages 738-754.
    13. Marques, Vítor & Costa, Paulo Moisés & Bento, Nuno, 2022. "Greater than the sum: On regulating innovation in electricity distribution networks with externalities," Utilities Policy, Elsevier, vol. 79(C).
    14. Reda, Francesco & Fatima, Zarrin, 2019. "Northern European nearly zero energy building concepts for apartment buildings using integrated solar technologies and dynamic occupancy profile: Focus on Finland and other Northern European countries," Applied Energy, Elsevier, vol. 237(C), pages 598-617.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brown, David P. & Sappington, David E. M., 2018. "Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources," Working Papers 2018-9, University of Alberta, Department of Economics.
    2. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    3. Ismail Saglam, 2024. "The Bayesian approach to monopoly regulation after 40 years," Journal of Regulatory Economics, Springer, vol. 65(1), pages 108-136, June.
    4. Brown, David P. & Sappington, David E. M., 2023. "Designing Incentive Regulation in the Electricity Sector," Working Papers 2023-10, University of Alberta, Department of Economics.
    5. Marques, Vítor & Costa, Paulo Moisés & Bento, Nuno, 2022. "Greater than the sum: On regulating innovation in electricity distribution networks with externalities," Utilities Policy, Elsevier, vol. 79(C).
    6. Bovera, Filippo & Delfanti, Maurizio & Fumagalli, Elena & Lo Schiavo, Luca & Vailati, Riccardo, 2021. "Regulating electricity distribution networks under technological and demand uncertainty," Energy Policy, Elsevier, vol. 149(C).
    7. Jesse D. Jenkins & Ignacio J. Pérez-Arriaga, 2017. "Improved Regulatory Approaches for the Remuneration of Electricity Distribution Utilities with High Penetrations of Distributed Energy Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    8. Philippe Gagnepain & Marc Ivaldi & David Martimort, 2013. "The Cost of Contract Renegotiation: Evidence from the Local Public Sector," American Economic Review, American Economic Association, vol. 103(6), pages 2352-2383, October.
    9. Tooraj Jamasb and Manuel Llorca, 2019. "Energy Systems Integration: Economics of a New Paradigm," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    10. de Laat, Eric A. A., 1997. "Patents or prizes: Monopolistic R&D and asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 369-390, May.
    11. repec:hal:pseose:hal-00710639 is not listed on IDEAS
    12. Hirth, Lion & Glismann, Samuel, 2018. "Congestion Management: From Physics to Regulatory Instruments," EconStor Preprints 189641, ZBW - Leibniz Information Centre for Economics.
    13. Committee, Nobel Prize, 2014. "Market power and regulation (scientific background)," Nobel Prize in Economics documents 2014-2, Nobel Prize Committee.
    14. Pal Debashis & Sappington David E. M. & Topolyan Iryna, 2022. "Pareto Gains from Limiting Compensation Options," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 12(1), pages 1-29, January.
    15. Floris Montfoort & Peter T. Dijkstra & Machiel Mulder, 2024. "The impact of energy transition on distribution network costs and effectiveness of yardstick competition: an empirical analysis for the Netherlands," Journal of Regulatory Economics, Springer, vol. 65(1), pages 85-107, June.
    16. Brown, David P. & Sappington, David E. M., 2017. "Self-Sabotage in the Procurement of Distributed Energy Resources," Working Papers 2017-11, University of Alberta, Department of Economics.
    17. Eskesen, Anita, 2021. "A contract design perspective on balancing the goals of utility regulation," Utilities Policy, Elsevier, vol. 69(C).
    18. Leon Yang Chu & David E. M. Sappington, 2015. "Contracting with Private Knowledge of Production Capacity," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 752-785, October.
    19. repec:hal:psewpa:hal-00710639 is not listed on IDEAS
    20. Isabelle Brocas, 2005. "Multistage Contracting with Applications to R&D and Insurance Policies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 317-346, May.
    21. Shouqiang Wang & Peng Sun & Francis de Véricourt, 2016. "Inducing Environmental Disclosures: A Dynamic Mechanism Design Approach," Operations Research, INFORMS, vol. 64(2), pages 371-389, April.
    22. Bester, Helmut & Strausz, Roland, 2007. "Contracting with imperfect commitment and noisy communication," Journal of Economic Theory, Elsevier, vol. 136(1), pages 236-259, September.

    More about this item

    Keywords

    Distributed Energy Resources; Procurement; Regulation;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:39:y:2018:i:5:p:131-156. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.