August 15, 2016

Article by Brattle Economists Evaluates Distributional Impacts of Residential Demand Charges

Brattle economists have authored an article published in the July 2016 issue of The Electricity Journal that analyzes the implications that the introduction of demand charges could have on customer bills and the economics of distributed energy storage.

With recent advancements in energy technologies such as smart metering and distributed generation, existing rates are beginning to be augmented with more sophisticated options – one of those options being demand charge. The authors note that rates with demand charges recover some portion of the utility’s cost by charging the customer based on their immediate demand for electricity, rather than just their monthly consumption.

To provide an initial assessment of the potential impacts of this rate design feature, the authors relied on load and income date for more than 1,000 utility customers in Vermont. The authors found that, on average, the bills of low-income customers are impacted no differently than those of other customers. Additionally, they found that demand charges can create substantial bill savings opportunities for customers with distributed energy storage, and that customers who experience the largest bill increase with demand charge will also tend to have the largest bill savings opportunities with distributed energy storage or other demand management technologies.

Among the recommendations, the report identifies a number of policy options such as developing a rate transition strategy, promoting demand management technologies, and exploring findings in other regions and with alternative rate designs.

The article, “The Distributional Impacts of Residential Demand Charges,” is authored by Brattle Principal Ryan Hledik and former Research Analyst Gus Greenstein. The full article can be accessed on The Electricity Journal website.

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Mr. Hledik has expertise in assessing the economics of smart grid investments and policies. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4