Locational signals to reduce network investments in smart distribution grids: what works and what not?

The increasing share of distributed generation causes massive network investment. Energy and network pricing can help to reduce the investment need. This paper examines and discusses different models for locational pricing in the distribution network. Locational energy pricing is largely ineffective when part of the feed-in would not be subject to market prices due to renewable support schemes. Locational network charging works well to guide investment, but does little for short term system operation, which is crucial in smart grids. Both such explicit schemes require a substantial system reform which impedes feasibility. With smart contracts we propose a hybrid form. They are developing in smart grids anyhow and will incorporate locational elements. System reform is only modest since responsibility for tariff setting stays with the network operator. The regulator’s task would be to incentivize the network operator for efficient network investment and allowing maximum flexibility.