Tariff schemes and socioeconomic factors in equilibrium analysis of DER investments

Journal article

Prosumers’ deployment of distributed energy resources (DER) is shaped by market incentives and budget constraints. Effective DER integration can reduce the long-term need for distribution network infrastructure, thereby diminishing overall electricity costs. Nevertheless, it may negatively impact cost allocation among users from different socioeconomic backgrounds. To analyze the efficiency and distributional aspects of DER deployment across different socioeconomic groups, this study employs a novel equilibrium model based on Stackelberg games. The model simulates interactions between a proactive low-voltage distribution network planner and prosumers who may invest in photovoltaic systems and batteries. Prosumers aim to minimize expenses based on tariffs, without knowledge of their peers’ decisions. Due to the non-linearities introduced by the tariff structure, a Gauss-Seidel algorithm is employed to reduce model complexity. The study examines six tariff combinations, revealing that cost allocation varies significantly depending on the tariff design. In this regard, the results show the risks associated with certain tariff designs, including potential losses in efficiency or unfair cost allocation. Likewise, the results highlight the value of cost-reflective tariffs in reducing unintended cross-subsidies. These findings underscore the importance of thoughtful tariff design and network planning in promoting both a distributional fairness DER deployment and system-wide efficiency.

Authors: Sanchez-Lopez, M; Churkin, A; Preece, R; Moreno, R; Cesena, EAM

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: IEEE
• Journal: IEEE Transactions on Energy Markets, Policy and Regulation
• Volume: 3
• Issue: 4
• Pages: 393-407
• Publication date: 2025-08-19
• Acceptance date: 2025-08-08
• DOI: 10.1109/TEMPR.2025.3600063
• EISSN: 2771-9626
• Language: English
• Keywords: investment; distributed generation; prosumer; economics; tariffs; reactive power; mathematical models; bilevel programming; stackelberg games; electricity tariffs; socioeconomics; distributed power generation; costs; resource management; distribution networks