> A lot of the infrastructure is a variable cost. The system is built/upgraded to support a peak demand, and your contribution toward that peak is variable.

That can be solved by implementing time-of-use pricing and incorporating the "peak demand" infrastructure cost into the price. You would calculate how much infrastructure is needed to provide a "baseline" load (the trough on a demand graph), and divide that among the "fixed" portion. Perhaps you also add some sort of locality adjustment so rural/urban areas pay their "fair share". The rest of the infrastructure cost would be added the variable electricity price.

>And if you lump everything into the variable fee, at least you have more incentive to conserve.

That in itself isn't a bad thing. The problem is that with solar panels/wind power, you're also shifting the cost from people who can afford to install renewables (usually richer people with money to invest) to people who can't (usually poorer).

The problem is that electricity costs would spike to insane levels (as seen on wholesale spot markets) and consumers should have price certainty and confidence in supply, otherwise you get lots of costs in other parts of the economy. See e.g. California, where diesel gen sets are proliferating like crazy, or other markets where high CO2, high cost gas is the game theoretic optimum, eventually leading to an all-peak supply side.

In the UK a lot of the cost of distribution and transmission infrastructure is charged based on your consumption during the three highest demand half hour periods in the year (triad charge). This only applies to large users on half hourly billing, standard domestic consumers just get a distribution fee included in their bill.

And yet that doesn't make sense if those peaks occur when there is low system wide demand, except for sizing the transformer nearby.

Really should have a reward for users that can reduce their demand when asked, or use time of day pricing.

Ah, I didn't really explain that well. The three half hour periods are selected based on the system wide demand. You are then charged for your demand during those periods. So you pay a lot for using capacity when the network is strained. Also, for distribution charging (rather than transmission) there is a half hourly congestion charging mechanism. Every HH period gets put into a red, yellow, or green band and you pay more distribution charge during the red and yellow periods.