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.
Former Research FellowDr. Rolando Fuentes was a research fellow focusing on business and regulatory models for the Utilities of the Future project.…Dr. Rolando Fuentes was a research fellow focusing on business and regulatory models for the Utilities of the Future project. He has extensive experience in the energy and environmental sectors as an academic and policymaker. Rolando was the director of international negotiations at the Mexican Ministry of Energy and later became director of hydrocarbons projects. Before joining the Mexican government, he was a fellow of the London School of Economics, where he lectured and taught courses in Environmental Impact Assessment and Environmental Policy, and supervised master’s dissertations. Rolando has also been an associate of the Oxford Institute of Energy Studies and IHS Cambridge Energy Research Associates (IHS CERA), and was a recipient of the British Chevenning Scholarship in 2001.
Former Research FellowJorge is a former research fellow specializing in energy and economics, with research interests in energy and macroeconomics, energy policies…Jorge is a former research fellow specializing in energy and economics, with research interests in energy and macroeconomics, energy policies and transitions.
Former Senior Research FellowIqbal is a former KAPSARC senior research fellow who led the Utilities of the Future project that develops decision support tools…Iqbal is a former KAPSARC senior research fellow who led the Utilities of the Future project that develops decision support tools for operational and strategic decision making. He is a Fellow of the Institute of Mathematics and its Applications (IMA), a member of the Institute of Physics (IOP) and a member of the Chartered Institute of Marketing (CIM). Iqbal is also the inventor of several patents.