July 27, 2023, 9:27 am . MRC

Transactive Energy Tariffs Provide a Pathway to Market for Microgrids

MRC recently proposed a new tariff design for grid customers in the California Public Utility Commission Proceeding on Demand Flexibility. The tariff proposal integrates flexible distributed energy resources and provides lower costs and greater grid resiliency. By implementing a localized “Variable Energy Price” and a customer option, customers receive most of their electricity consumption at traditional fixed rates but can sell demand response services and export electricity at a price consistent with wholesale energy markets.

What is a demand flexibility tariff?

A demand flexibility tariff integrates behind-the-meter distributed energy resources (DER) and smart non-generation resources such as batteries, smart appliances, and EV charging (Customer Resources) into the grid by providing local, real-time prices for demand response and energy export. This kind of tariff structure allows customers to respond to price signals, rather than dispatch instructions, to alter their load shape for the benefit of the grid. It also protects the grid by reducing congestion on the transmission and distribution system, so that the grid operates safely within its electrical limits. 

How do they benefit customers?

Beyond strengthening the resilience of the electric grid, demand flexibility tariffs also reduce costs for all customers in several ways:

  1. By shaping load around the availability of intermittent resources, the tariff reduces both peak demand and ramping requirements and allows flexible grid resources to operate more nearly at resource peak efficiency.
  2. By managing the system load at all times, not only peak times, it provides increased beneficial electrification capacity through better infrastructure utilization and avoids massive distribution infrastructure investments. 
  3. By reducing stress on generation, transmission, and distribution equipment it reduces operation and maintenance cost. 
  4. By using lower cost Customer Resources, by avoiding line losses, and by avoiding use of the highest priced peaking resources it reduces system wide energy price.

MRC proposes a solution

A system as complex as the electric grid, requires a similarly dynamic solution to accomplish the goals above. A demand flexibility tariff will benefit the grid and allow customers to compete in energy markets on a level playing field.

 Variable Energy Price

Demand tariffs should be based on “a variable component equal to the locational marginal cost of delivering energy at each priced point on the distribution system.” This is how the wholesale energy market is priced, and incentives to Customer Resources should integrate seamlessly with the wholesale market. Doing so would avoid mis-incentives and prevent risk to the system. This would be called the “Variable Energy Price.”


MRC also proposes that customers not be asked to take the risk of a fully variable tariff, but have an option to purchase electricity up to their historic usage levels (the “Customer Profile”) at a traditional level Tariff Price. If they go over or under the amount of the Customer Profile they pay for, they pay for or are compensated at a price based on the Variable Energy Price. Read an overview of the MRC CA Demand Flex Proposal here or read the whole proposal here.

Resilience and equity

The MRC believes that this proposal minimizes costs to all customers, and supports grid resilience with Customer Resources. The program should be designed to provide equitable access for low-income customers and communities. For example, the program could provide on-bill financing, or direct utility installation of home energy management systems.

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