Cost-causality based tariffs for distribution networks with distributed generation

Around the world, the amount of distributed generation (DG) deployed in distribution networks is increasing. It is well understood that DG has the potential to reduce network losses, decrease network utilization, postpone new investment in central generation, increase security of supply, and contribute to service quality through voltage regulation. In addition, DG can increase competition in electricity markets, and for the case of renewable DG provide environmental benefits. The increasing penetration of DG in the power systems worldwide has changed the concept of the distribution networks. Traditionally the costs of these networks were allocated only to demand customers, not generation because these networks were viewed as serving demand only. In this sense, traditional distribution networks were considered passive networks unlike transmission networks which serve both generation and demand and have always been considered active networks. The introduction of DG transforms a distribution network from a passive network into an active network. Present tariffs schemes at distribution level have been conceived using the traditional concept of distribution and do not recognize the new situation. Tariffs have been, and actually are, designed for networks which only have loads connected. These tariffs that normally average costs among network users are not able to capture the real costs and benefits of some customers like DG. Consequently, traditional tariffs schemes at the distribution level can affect the competitiveness of DG and can actually hinder or stop its development. In this work a cost-causality based tariff is proposed for distribution taking into account new distribution networks tend to be active networks, much like transmission. Two concepts based on the same philosophy used for transmission pricing are proposed. The first is nodal pricing for distribution networks, which is an economically efficient pricing mechanism for short term operation with which there is a great deal of experience and confidence from its use at transmission level. The second is an extent-of-use method for the allocation of fixed costs that uses marginal changes in a circuit s current flow with respect to active and reactive power changes in nodes, and thus was called Amp-mile method. The proposed scheme for distribution pricing results to give adequate price signals for location and operation for both generation and loads. An example application based on a typical 30 kV rural radial network in Uruguay is used to show the properties of the proposed methodology