On the Role of Maximum Demand Charges in the Presence of Distributed Generation Resources

Abstract

We examine the role that maximum demand charges (MDCs) can play in avoiding the death spiral that some utilities may otherwise face as the distributed generation (DG) of electricity proliferates. We find that MDCs generally secure gains for consumers that do not undertake DG, and often secure gains for consumers that undertake DG. However, the welfare gains tend to be modest in plausible settings. Furthermore, time-of-use pricing often secures larger welfare gains than do MDCs.

Keywords: Maximum Demand Charges, Distributed Generation, Time-Of-Use Prices, Electricity Regulation

JEL Classification: D47, L50, L94, Q40