Cost Allocation in Integrated Community Energy Systems

With the growing concerns over energy depletion and environmental protection all over the world, more and more attention is being paid to energy transition towards renewable energy sources (RESs), energy efficiency improvement, and CO$_2$ emission reduction. Integrated community energy systems (ICESs) emerge in the development of local energy systems by integrating local distributed energy resources (DERs) and local communities. Local community members are actively involved in the planning, development, and administration of the energy system as well as the allocation of its costs and benefits.

In principle, the costs should be paid by those who consume energy and use energy-related services in the system, and the benefits should be assigned to those who made the investments. A well-designed cost allocation contributes to the successful implementation in the short-term and sustainable development of ICESs in the long-term. In large power systems, the regulator makes decisions on tariff design according to the regulatory principles. However, no regulators are dealing with these issues in ICESs. The local community itself needs to agree on the cost allocation method themselves. It, therefore, requires that the costs are allocated in a socially acceptable manner. In order to fill in the research gap, the main research question addressed in this thesis was:

How to design cost allocation in an ICES in a socially acceptable manner?

This question was answered by first reviewing cost allocation in tariff design, including the objectives, regulatory procedures, tariff structure design, regulatory principles and the widely used cost allocation methods. After that, an extensive discussion of how these concepts and methods can be applied in the context of cost allocation in ICESs was conducted. Based on this, a systematic framework was proposed in order to ensure a successful implementation of cost allocation design in ICESs.

Cost allocation framework

Cost allocation in ICESs is a rather new topic, there is no guidance on how to do it in a systematic manner. This thesis presented a systematic framework for allocating costs in ICESs learning from cost allocation in electricity tariff design. It clearly defines the objectives, procedures, and required components for allocating costs in a socially acceptable manner. Ten cost allocation methods that are applicable in the context of cost allocation in an ICES were derived and formulated mathematically to show their underlying principles.

Performance assessment of cost allocation methods

Each cost allocation method has its own characteristics and may perform differently. It is necessary to assess their performance in order to distinguish between them. In this thesis, two criteria: cost reflectiveness and predictability are proposed to evaluate the performance of the ten cost allocation methods. Cost reflectiveness is used to gain insights into how well the costs are allocated and cost predictability is used to show how the energy costs change in the long-term. For this purpose, a case study with 100 households is used in the model to investigate the performance of the ten cost allocation methods. The results showed that energy-based methods perform better compared to other methods. In order to further identify the effectiveness of the methods and how they perform in terms of the two criteria, a sensitivity and a robustness analysis are conducted. The sensitivity was conducted by investigating the changes in the number of consumers in the community.

The results showed that the number of consumers has little or no influence on the performance of the ten cost allocation methods in terms of cost reflectiveness and predictability. The robustness analysis was conducted by investigating the penetration of prosumers in the ICES. The findings concluded that the increasing prosumer penetration has a positive effect on the performance of the ten methods in terms of the two criteria in the event of changes in the number of local community members and prosumers. The two analyses also presented that the energy-based allocation methods can retain their merits in respect of the two criteria. The comprehensive analysis provides a better understanding of the performance of the ten cost allocation methods considered in this thesis.

Social acceptance analysis

One of the novel aspects of ICESs lies in the integration of local community members. They play an important role in the energy system by actively involving in the planning, development, and administration of the energy system as well as the allocation of its costs and benefit. Local community members are encouraged to participate in the decision-making process. They may have various preferences towards cost allocation. The selected cost allocation method should satisfy the requirements and preferences of local community members.

Furthermore, no regulators are involved in ICESs, the community itself needs to agree on the cost allocation method themselves. It, therefore, requires that the selected cost allocation method be socially acceptable to local stakeholders. In this thesis, social acceptance is conceptualized from the perspective of procedural and distributive justice to make sure both the process and the results of cost allocation are fair and socially acceptable to local community members. Furthermore, local community members with similar backgrounds and interests may have similar or the same preference over the criteria. Therefore, they can be classified into several groups according to their major preferences. It, therefore, stands for a multi-group, multi-criteria, and decision-making problem. Here we proposed a multi-group multi-criteria decision-making approach to support the local community member in selecting a socially acceptable cost allocation method.


A simulation was also conducted in order to understand the decision-making tool developed in this thesis. The local community is categorized into different decision-making groups considering the differences in their major preferences. Seven decision-making groups are considered in this study, and their major preferences vary from fairness, cost reflectiveness to stability and any combination of them. The numerical results show that time-of-use pricing is the best solution for the seven decision-making groups considered in this research. In addition, an analysis with the changes in the weights of the decision-making groups was conducted to see how this would influence the selection of cost allocation method. The results indicated that the changes in the number of local community members in different decision-making groups influences the selection of best solutions.

Conclusions

This thesis presents a practical solution for allocating costs in ICESs in a socially acceptable manner. A systematic framework was formulated, possible cost allocation methods were proposed, and a decision-making tool was developed in the research in order to ensure a successful implementation of cost allocation design in ICESs. The methodology developed in this thesis can be applied to any local community energy system. The obtained results can be used by decision-makers to help them in the decision-making process. A successful cost allocation will definitely contribute to the implementation of ICESs, thus contributing to the energy transition.