On Net Energy Metering X: Optimal Prosumer Decisions, Social Welfare, and Cross-Subsidies

Abstract

We propose a social welfare maximizing market mechanism for an energy community that aggregates individual and community-shared energy resources under a general net energy metering (NEM) policy. Referred to as Dynamic NEM (D-NEM), the proposed mechanism dynamically sets the community NEM price based on aggregated community resources. D-NEM guarantees a higher benefit to each community member than possible outside the community, and no sub-communities would be better off departing from its parent community. D-NEM aligns each member's incentive with that of the community such that each member maximizing individual surplus under D-NEM results in maximum community social welfare. Empirical studies compare the proposed mechanism with existing benchmarks, demonstrating its member and communitylevel welfare benefits.

Integrating Distributed Energy Resources: Optimal Prosumer Decisions and Impacts of Net Metering Tariffs

“…Most, if not all, retail tariffs belong to either the NEM or the FiT tariff families; the U.S. markets have mostly adopted the variants of the NEM tariff, whereas FiT is more prevalent in Europe and parts of Asia [3]. This section presents an inclusive analytical model for retail tariffs in the distribution systems [1].…”

“…2) The NEM X tariff model: NEM X is an inclusive model for net-metering tariffs with differentiated (customer) import and export prices [1]. It includes, as special cases, most NEM tariffs that have been implemented and those under consideration.…”

“…Much of the recent debate on retail electricity tariff centers around the net energy metering (NEM) policies that played a critical role in the phenomenal growth of the behind-themeter (BTM) distributed generation, mostly from rooftop photovoltaics (PV). First implemented serendipitously in the late 1970s without the awareness of the utility company 1 , the classic NEM tariff, commonly referred to as NEM 1.0, offers compelling economic incentives for PV adoption by compensating a prosumer 2 for its export of net BTM generation at the same retail price as for consumption.…”

“…A contextual survey is provided in Appendix VIII-B, focusing on social welfare distribution, cross-subsidies, and long-run performance when the NEM rates are set sequentially. The NEM X tariff model was first proposed in [1], which generalizes earlier models of NEM, FiT, and net purchase and sale tariffs by the work in [2]. There is little published work on the optimal prosumer decision problems under NEM X.…”

“…There is little published work on the optimal prosumer decision problems under NEM X. The results presented here are built on [1] with several extensions addressing the stochasticity of BTM renewables and long-run performance of NEM X. Most theoretical and algorithmic results are relegated to Appendix VIII-C.…”