The model company incentive regulation scheme and the integration of distributed generation

The paper discusses the conflicts that arise between traditional incentive regulation, where consumers pay a fixed tariff to the distribution company for providing the wire service, and the arrival of distributed generation that alters this arrangement. The Chilean case, where a model company approach is used for tariff building is explained, and how distributed generators are conflicting with the distribution companies as they attempt to connect to their networks. Often, the long distance between renewable power sources and the transmission system, in addition to the small capacity of these distributed generators (DG), renders unprofitable the installation of private lines from the DG to that system. This situation motivates the DG owner to connect the generator to the distribution network. The distribution systems, however, are not usually designed to receive energy at the consumer end. This problem intensifies in developing countries where rural distribution systems are very limited. Thus, when connecting a DG to a radial feeder it is often necessary to upgrade the feeder. The way to make this upgrade coherent with the incentive regulation scheme in place is not evident.