Grid tariff design and peak demand shaving: A comparative tariff analysis with simulated demand response

Abstract

The electrification of the energy system requires significant grid expansion, raising the question of how to defer investments through efficient utilisation of the existing grid. Cost-reflective grid tariff designs that incentivise peak demand shaving are a possible solution. Hence, this paper compares the ability of five capacity-based and energy-based tariff designs to achieve peak demand shaving, and it provides policy recommendations on tariff choice, design options and demand response potential. The analysis is conducted on the basis of real electricity consumption data from 3608 customers in a Norwegian grid area with simulated demand response. A mathematical optimisation model that minimises customers' tariff costs calculates the response to the tariff's price signals. The results show that tariff performance depends on two design characteristics: whether the tariffs target individual or grid peaks and whether peak periods are determined ex-ante or ex-post. Further, we find that energy-based tariffs, such as time-of-use and critical peak pricing, achieve the highest peak demand reduction for load shaving, but may create new and possibly very high peaks if load shifting occurs.