Influence of distribution tariff structures and peer effects on the adoption of distributed energy resources

Abstract The emergence of prosumers calls for a revision of distribution network tariff design to ensure efficient network utilization and optimal customer response. This article aims to investigate the influence of different distribution tariff structures and peer effects on both residential consumers’ distributed energy resources adoption and the allocation of electricity distribution costs. We developed an agent-based model to analyze the interaction between distribution tariffs and the adoption of distributed energy resources. The model takes into account the influence of both economic (e.g., payback period and income level) and non-economic (e.g., peer effects) factors on technology adoption. The model endogenously considers the interplay between the technology adoption and the evolution of distribution tariffs and takes into account the interaction among consumers by incorporating peer effects. We found that under our test case assumptions, the presence of non-economic factors in the decision making, such as peer effects, is the rate-limiting step of the adoption process in the short-term. Hence, creating mechanisms that encourage interpersonal communication among residential consumers may help more risk-averse consumers redefine their attitudes about the benefits and costs of adopting distributed energy resources. We also found that a utility death spiral is more likely to occur with an annual net-volumetric distribution tariff. The increase in distribution cost was ten percentage points higher than that obtained with an annual maximum offtake capacity tariff. Given the complexities of an electricity system where the consumer is at the center, we recommend that regulators and distribution system operators adopt a whole system approach to managing the electricity system.