Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources

54 Pages Posted: 15 Jul 2018

See all articles by David Brown

David Brown

University of Alberta - Department of Economics

David E. M. Sappington

University of Florida - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 13, 2018

Abstract

We consider the optimal design of simple cost-sharing policies to motivate electricity distribution utilities to manage the costs of distributed energy resource (DER) projects. The optimal share of realized cost savings (s) that is awarded to the utility takes a particularly simple form in certain settings. More generally, s can vary with the prevailing environment in subtle and sometimes counterintuitive ways. For instance, s may increase as cost savings become less onerous for the utility to secure and as the utility becomes more averse to risk. Gains from affording the utility a choice among cost-sharing policies typically are minimal.

Keywords: distributed energy resources, procurement, regulation

JEL Classification: L51, L94

Suggested Citation

Brown, David and Sappington, David E. M., Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources (July 13, 2018). USAEE Working Paper, Available at SSRN: https://ssrn.com/abstract=3213275 or http://dx.doi.org/10.2139/ssrn.3213275

David Brown (Contact Author)

University of Alberta - Department of Economics ( email )

8-14 Tory Building
Edmonton, Alberta T6G 2H4
Canada

David E. M. Sappington

University of Florida - Department of Economics ( email )

224 Matherly Hall
Gainesville, FL 32611-7140
United States
352-392-3904 (Phone)
352-336-1420 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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