Demand during peak hours versus peak-driving demand: Revisiting one size fits all dynamic grid tariffs

Abstract

Electricity grid tariffs should reflect network costs in order to provide efficient incentives for timing electricity use and investment in new technologies. We compare tariff designs that deal with existing and expected future grid congestion. Although common volumetric tariff designs such as Time-Of-Use are partly cost-reflective, their designs have fundamental drawbacks in terms of the principles of cost allocations and potentially may lead to social disparities. In a case study of 1.56 million Danish households divided into 90 socio-techno-economic categories, we compare three alternative grid tariffs and investigate their impact on annual electricity bills. This study shows that penalizing consumption above a certain threshold leads to higher costs for owners of electric vehicles regardless of the timing of their consumption. In contrast, penalizing consumption during system peaks mainly affects the electricity bills of heat pump owners. The results of our design simultaneously applying a time-dependent threshold and a system peak tariff show (a) a range of different allocations that distribute the burden of additional grid costs across both technologies and (b) strong positive outcomes, including reduced expenses for lower-income groups and smaller households. Our study offers policymakers a menu that assigns grid costs to demand technologies, thereby giving them valuable input.Comment: 30 pages, 18 figures, journal articl