Report | 2014

Rate Design for the Distribution Edge: Electricity Pricing for A Distributed Resource Future

By Devi Glick

The U.S. electricity system is on the cusp of fundamental change, driven by rapidly improving cost-effectiveness of technologies that increase customers’ ability to efficiently manage, store, and generate electricity in homes and buildings. With growing adoption of these technologies, the electricity system is shifting toward a future in which the deployment and operation of distributed energy resources (DERs) will have far-reaching implications for grid operation, investment, and security. Yet, there is a looming disconnect between the rapidly evolving new world of distributed energy technologies and the old world of electricity pricing, where relatively little has changed since the early 20th century. By changing electricity pricing to more fully reflect the benefits and costs of electricity services exchanged between customers and the grid, utilities and regulators can unleash new waves of innovation in distributed energy resource investment that will help to reduce costs while maintaining or increasing system resilience and reliability.