Limitations of forward-looking distribution grid tariffs

Forward-looking distribution grid tariffs for residential consumers are receiving increasing attention as network operators face growing upgrade and replacement investment costs. The authors develop a novel methodology to assess the efficiency of forward-looking tariffs, explicitly considering (i) household decision-making and cost recovery for distribution system operators by modelling a non-cooperative game and (ii) a detailed, non-smooth network cost function by incorporating a grid expansion planning model. In a case study, the authors shed light on two potential limitations of forward-looking grid tariffs. They show that it may be impossible to determine a forward-looking capacity tariff that ensures cost recovery. Moreover, the authors find that forward-looking capacity tariffs are not always cost-efficient, with large variations depending on case-specific characteristics.