Economic framework for compensating distributed energy resources: Theory and practice

Abstract We offer an economic framework for analyzing the compensation that DERs should receive for energy exported to the grid. This economic framework requires that the prices paid to DER owners be based upon the forward-looking, economic costs that their utility avoids when it buys the energy from the customer. We explain why this results in efficient ‘build or buy’ and ‘purchase and install’ decisions of the utility and DER customer, respectively.