Achieving Social Optimality for Energy Communities via Dynamic NEM Pricing

TL;DR

This paper introduces Dynamic NEM, a pricing mechanism that optimizes social welfare in energy communities by dynamically setting NEM prices based on shared renewables, aligning individual incentives with community benefits.

Contribution

The paper proposes a novel Dynamic NEM mechanism that guarantees higher community benefits, aligns individual incentives with social welfare, and satisfies cost-causation principles.

Findings

Dynamic NEM increases individual benefits within the community.

It aligns individual incentives with overall community welfare.

Empirical studies show benefits for members and grid operators.

Abstract

We propose a social welfare maximizing mechanism for an energy community that aggregates individual and shared community resources under a general net energy metering (NEM) policy. Referred to as Dynamic NEM, the proposed mechanism adopts the standard NEM tariff model and sets NEM prices dynamically based on the total shared renewables within the community. We show that Dynamic NEM guarantees a higher benefit to each community member than possible outside the community. We further show that Dynamic NEM aligns the individual member's incentive with that of the overall community; each member optimizing individual surplus under Dynamic NEM results in maximum community's social welfare. Dynamic NEM is also shown to satisfy the cost-causation principle. Empirical studies using real data on a hypothetical energy community demonstrate the benefits to community members and grid operators.