Pricing Policies for the Integration of Distributed Energy Resources in Utility Systems (2017)

Client Organization: 
DTE Energy
Project Location : 
Ann Arbor, MI
Summary of Project Idea: 

Distributed energy resources – most prominently solar PV, but also other forms of small-scale localized generation – have been growing as a share of U.S. electric generation. In the last several years, utilities, states, industry groups, and advocacy organizations have proposed and in some cases implemented new pricing and policy mechanisms, such as “value of solar” tariffs, buy-all-sell-all rates, modified net metering, standby rates, and high fixed charge rates to adapt pricing models to the growth in distributed resources.

Goals & Objectives: This project will identify the various electricity pricing and policy mechanisms being used or proposed to manage distributed energy resources; assess the benefits/drawbacks to each; perform scenario modeling of impacts for typical residential customers; and provide a recommendation on potential paths to pursue in Michigan.

Theoretical Justification, Social Benefit, or Significance: Traditional utility rate structures pose two primary problems in the face of growth of distributed energy resources. First, they can cause unfair distribution of costs among utility customers, resulting in hidden subsidies. Second, they can distort the perceived economics of distributed energy resources, resulting in sub-optimal adoption of these resources compared to the economic value they provide. Utilities have been working for several years to determine appropriate pricing policies and compensation mechanisms for distributed generation, but no consensus has emerged. This research will support DTE Energy in its evaluation of the preferred policies to pursue for the State of Michigan to ensure that distributed energy resources are adopted and integrated on the basis of fair and economic decisions.

Specific Activities & Duration: The project should include:

  • Internet / news / industry research identifying the policies, the arguments for and against each, the attempts to use each, and the successes/failures of each of those attempts
  • Academic research on the literature (in economics, business, etc.) laying the theoretical and historical groundwork for the traditional and new pricing policies and possibly case studies on the recent attempts at new models in the industry
  • Quantitative, analytical modeling of scenarios for typical households with and without distributed generation

Integrative Approach: This effort would benefit from the skills of students with interests / expertise in several topic areas / skill areas, including:

  • Topics: energy, electricity, policy, renewables, economics
  • Skills: research, policy analysis, writing, analytics, modeling, statistics
SEAS Program Areas: 
Environmental Policy and Planning
Behavior, Education, and Communication
Sustainable Systems
Role for each program area: 

Environmental policy and planning: Understand and interpret policy considerations from the perspective of multiple stakeholders (utilities, customers – general and those with or desiring distributed energy resources, state policymakers, environmental advocates). Find and review policy literature.

Behavior, Education, and Communication: Understand potential implications of changed pricing policies on consumer behavior. Use understanding of behavior to guide assumptions in modeling about customer energy use under different pricing models.

Sustainable Systems: Understand how the electricity system works and how distributed energy resources fit into it. Bring strong analytical skillset.

The project will require strong research skills, excellent writing and synthesis of complex topics, and deep modeling and analytical expertise.

Team size: 4-5 students

Professional Career Development Benefits: 

Students will have the opportunity to work with DTE Energy teams and present their findings to appropriate groups and individuals at DTE.

Identify expected products/deliverables: 

Deliverables:  

  • Written report on research / background (by summer 2016):
    • Pricing policy approaches to managing distributed energy resources
    • Arguments for and against each approach from various stakeholder perspectives
    • Experiences of states / utilities proposing or using different approaches
  • Updated report including academic literature review (fall 2016)
  • Quantitative model assessing implications of different pricing policies, under different potential scenarios
  • Final report including results of all previous steps and proposed recommendations for Michigan (spring 2017)

Implementation
We will use the findings to communicate with internal stakeholders and help shape the company’s approach to pricing policies. As appropriate, we may share the results of the findings with external stakeholders including Michigan policymakers, industry colleagues and associations, etc.

Contact full name: 
Shoshannah Lenski / Rachel Chalat
Job title: 
Manager / Business Analyst, Corporate Strategy
City: 
Ann Arbor
State or Country: 
MI
SEAS Faculty Advisor: 
Tom Lyon
Contact Phone: 
734-302-5331
Contact information: 
SNRE alum
Master Students Involved in Project: 
  • Cazzie Palacious Brown, MS Environmental Policy and Planning/Sustainable Systems 
  • Cecilia Lee, MS Sustainable Systems 
  • Niel Patel, MS Sustainable Systems 
  • Syne Salem, MS Sustainable Systems 
  • Lingchen Sun, MS Sustainable Systems 
Project Status: 
Past Project