Synergetic design of variable distribution network tariffs and upgrade investments

Digitalization and the increase of distributed energy resources lead distribution system operators and regulatory authorities to rethink their practices. Two of their most important shared duties are to design the use-of-system tariffs, also known as network tariffs, and to plan network investments. This paper proposes a methodology for the synergetic design of variable network tariffs and network upgrade decisions. A novel stochastic bilevel optimization model is proposed, with investment decisions addressed in the first stage and the interaction between tariffs and prosumers’ responses captured in the second stage. The tariffs recover system costs, including network upgrade investments, and can have temporal and spatial variation. Fair cost allocation issues arising from their spatial variation are addressed. The case studies demonstrate the method’s effectiveness in reducing investment and operational costs, the trade-off between tariff granularity and cost reduction, and the value of stochastic versus deterministic planning.