Metin Çakanyıldırım is a Professor of School of Management, University of Texas at Dallas. He achieved the Ph.D. degree in operations research from Cornell university in 2000. His expertise includes supply chain management, inventory management, demand forecasts, and so on. Professor Çakanyıldırım is a member of Production Operations Management Society, Institute for Operations Research and Management Sciences, and Decision Sciences Institute. He was awarded the Production and Operations Management Society Service Award, Harold W. Kuhn Award from Naval Research Logistics Journal, and Best paper in Scheduling and Logistics from IIE Transactions Journal.
Solar power generation by consumers is growing but not necessarily to the benefit of utility (power generation and transmission) firms. Reducing the power demand, it hinders the coverage of utility costs with reasonable retail electricity prices. Utilities in practice tend to raise retail prices, unintentionally reducing both affordability and demand of electricity, and are hence said to be caught in a utility death spiral. The reduced affordability adversely affects financially challenged consumers that cannot invest into solar power. Environmentally desirable solar power paradoxically can be socially undesirable. Facing this paradox, market regulators are challenged to keep retail prices low within the current pricing mechanisms. We provide a novel revenue maximization formulation for a regulated utility and reveal the interaction between optimal retail price increases and growing solar power adoption. Iterating with this interaction, we analytically explain when and how the utility death spiral occurs. We consider new pricing mechanisms that involve a buyback price and a subscription fee. The fee mitigates the optimal retail price increase by allowing for the coverage of fixed costs in part. We find appropriate values for the buyback price and subscription fee to slow or stop the death spiral. These mechanisms and values are important not only for the utility and its regulator, but also for all electricity consumers.
