Grid Tariffs for Peak Demand Reduction: Is there a Price Signal Conflict with Electricity Spot Prices?

Abstract: The electricity grid is expected to require vast investments due to the decarbonization-by-electrification trend, calling for a change in grid tariff design which provides proper incentives for reducing peak loads. However, price signals from grid tariffs could be distorted from electricity spot prices which also represents a significant of the total consumer electricity bill. This paper attempts to identify whether there is a price signal conflict between grid tariffs and spot prices. Four different grid tariff designs are compared, using a generic demand response model as part of a cost-minimizing linear program to simulate the reduction in peak load. The method is applied to metered electricity demand from 3608 consumers in Oslo, Norway. Results show that new grid tariff designs reduce peak loads by 1-4%, and that reduction in peak load is smaller when consumers are subject to electricity spot prices.