One Rate Does Not Fit All: An Empirical Analysis of Electricity Tariffs for Residential Microgrids

Increasingly, residential customers are deploying PV units to lower electricity bills and contribute to a more sustainable use of resources. This selective decentralization of power generation, however, creates significant challenges, because current transmission and distribution grids were designed for centralized power generation and unidirectional flows. Restructuring residential neighborhoods as residential microgrids might solve these problems to an extent, but energy retailers and system operators have yet to identify ways of fitting residential microgrids into the energy value chain. One promising way of doing so is the tailoring of residential microgrid tariffs, as this encourages grid-stabilizing behavior and fairly re-distributes the associated costs. We thus identify a set of twelve tariff candidates and estimate their probable effects on energy bills as well as load and generation profiles. Specifically, we model 100 residential microgrids and simulate how these microgrids might respond to each of the twelve tariffs. Our analyses reveal three important insights. Number one: volumetric tariffs would not only inflate electricity bills but also encourage sharp load and generation peaks, while failing to reliably allocate system costs. Number two: under tariffs with capacity charges, time-varying rates would have little impact on both electricity bills and load and generation peaks. Number three: tariffs that bill system and energy retailer costs via capacity and customer charges respectively would lower electricity bills, foster peak shaving, and facilitate stable cost allocation.