Designing distribution network tariffs that are fair for different consumer groups

Increasing use of distributed generation, the introduction of Electric Vehicles and smart technologies and changing patterns of energy demand have all changed the way in which the distribution network for electricity is used, both in Europe and worldwide. These changes raise the question not only of how distribution systems should be used, but also how costs should be met. In particular, there are concerns about whether costs of ‘traditional’ networks will be stranded, and, if so, who will bear the costs.

The Clean Energy Package, proposed by the European Commission in 2016, emphasises the importance of competitive prices, efficiency and non-discrimination. It focuses on cost as a basis for tariffs, which should also allow consumers to feed in their own generation, and to pay the appropriate share of distribution system costs. The Package also acknowledges the importance of social objectives by individual Member States, while reiterating prohibition of specific cross-subsidies.

Within this cost-related framework this report outlines some concepts of fairness, emphasising that this criterion does not deliver a unique template, but depends both on how some costs are allocated and on different interpretations of fairness. We review some existing tariff structures, and simulate the effects of some structures through ‘notional’ households, allowing some households to selfgenerate. When consumers respond very differently to tariff signals, those who are unwilling or unable to respond to changing tariffs may find themselves bearing a greater burden of the system’s costs, which raises particular issues around fairness.