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Abstract

A market in which individuals pursue their own self-interest normally maximizes aggregate economic well-being. But households that install Distributed Energy Resources (DERs) in order to obtain savings in their electricity bill, impose an external cost on other customers. At scale, their actions can lead to higher electricity tariffs for utility customers and, in the extreme case, a utility death spiral.

In this paper, we propose a market mechanism that may ameliorate this potential distortion based on the creation of a market for risk. Utilities would provide reliability insurance services to households to protect them against the failure of their own DER systems. Creating such an insurance market would allow customers to choose a premium according to their preference for reliability. It could also limit the potential utility death spiral efficiently, as the path would be driven by market mechanisms that arise after reassigning property rights and liabilities between utilities and their customers.

Authors

Rolando Fuentes

Rolando Fuentes

Research Fellow Dr. Rolando Fuentes is a research fellow focusing on business and regulatory models for the Utilities of the Future project.…

Expertise

  • Electricity reform
  • climate change
  • and energy policy and renewables

Publications See all Rolando Fuentes’s publications

Reorganizing Power Markets: A Reliability Insurance Business Model for Utilities

Reorganizing Power Markets: A Reliability Insurance Business Model for Utilities

A market in which individuals pursue their own self-interest normally maximizes aggregate economic well-being. But…

November 26, 2018

How to Reform the Power Sector in Mexico? Insights from a simulation model

A market in which individuals pursue their own self-interest normally maximizes aggregate economic well-being. But…

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Jorge Blazquez

Jorge Blazquez

Former Research Fellow Jorge is a former research fellow specializing in energy and economics, with research interests in energy and macroeconomics, energy policies…

Iqbal Adjali

Iqbal Adjali

Former Senior Research Fellow Iqbal is a former senior research fellow at KAPSARC who led the Utilities of the Future project, which develops decision…

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