Retail electricity tariff and mechanism design to incentivize distributed renewable generation

This paper examines the question of how to incentivize the adoption and use of renewable energy resources, with particular attention on distributed renewable energy (DRE). Prior experience suggests that price and quantity-based programs, such as feed-in tariffs, provide more efficient renewable adoption and use and lower program costs than programs that set quantity targets only. We also examine some cost-allocation issues raised by the use of DRE systems and fixed time-invariant retail pricing. This combination can result in customers with DRE systems paying a disproportionately small portion of system capacity costs. We suggest two retail-pricing schemes, real-time pricing and a two-part tariff with demand charges, to address these issues.