Unlocking the Value of Distributed Energy Resources in Electric Distribution Networks : Exploring the Role of Locational Tariffs

The proliferation of distributed energy resources (DERs) in electric distribution networks brings both challenges and opportunities to the management of the electric grid. In the right locations these resources can provide value to the network by reducing congestion and losses and deferring investment in network upgrades. To unlock this value, however, more efficient economic signals need to be sent to the network users who ultimately make the decisions to install and operate these technologies. This thesis proposes a modeling framework for evaluating the impact of tariff structure on the adoption of DERs within distribution networks, and their ensuing impact on network cost drivers. The framework combines a dynamic end user model, which simulates the operational and investment decisions of electric customers, with a distribution-level power flow model that allows for precise observation and allocation of network costs. Case studies suggest that the types of technologies and their patterns of adoption within the network are likely to differ significantly depending on the pricing scheme. Prices that incorporate the cost of losses and congestion within the distribution network are shown to lead to DER adoption patterns that result in the greatest benefits to both customers and the network. I conclude with policy recommendations and directions for future research. Thesis Co-Supervisor: Ignacio Perez-Arriaga Title: Visiting Professor, Sloan School of Management Thesis Co-Supervisor: Claudio Vergara Title: Postdoctoral Associate, MIT Energy Initiative