The traditional regulated monopoly model for electric utilities is outdated. It limits innovation, product and service development in the power sector. One example is the regulatory treatment of distributed energy resources (DER). In 46 states and D.C., customers are permitted to sell back excess energy generated from DERs through a process called net metering. As DERs like battery storage and rooftop solar penetrate the market, they increasingly expose cross-subsidies inherent in traditional utility rate design. Standard net metering policies attempt to serve a diverse customer base within this rigid framework and cannot properly capture the costs and benefits to the grid. In turn, controversies develop over net-metering regulation and whether or not all customers are paying for the grid services they consume.
This method has typically relied on billing and crediting DER customers at the retail rate of power. The retail rate is designed to distribute the costs of building and operating the electric grid according to how much power a customer uses. That means it captures common utility costs like generation and transmission capacity, fuel surcharges, and grid maintenance. Net metering customers may avoid utility fees altogether if they produce enough energy to contribute to the grid, though they clearly depend on the grid to sell their excess generation and provide backup power. In this case, utility companies must shift the burden of those costs to non-net metering customers through higher rates.
At the same time, the administrative simplicity of net metering fails to account for many of the environmental and economic benefits from DERs. Utilities can avoid building new generation and transmission facilities if enough power comes on-line at the distribution level. All customers benefit when DERs help neighborhoods recover more quickly from power outages. DERs can provide ancillary services, improve reliability, and improve power quality. None of these benefits are captured in net metering either.
As participation in net metering programs grows, alternative frameworks that address these shortcomings will be necessary. A potential option to change institutional design would be to rely on clearer price signals to elucidate the costs and benefits across a variety of grid services. This would involve a distribution utility that uses an open retail market platform, open interconnection standards and a transparent two-part grid services charge.
It is useful to compare net metering for distributed sources of electricity , like PV systems, to distributed energy storage systems. As to the distributed sources of electricity, a major… Read more »
Net metering is clearly a mixed bag. When only a small fraction of a percent of customers took advantage of it, utilities went along. But as it has gained traction,… Read more »
Richard: I like your comments and perhaps you might want to expand upon them by addressing a few thoughts that concern me. A large fraction of the solar energy produced in… Read more »
Herschel, thanks for your comments. You have identified a couple of disconnects in this debate. But first, it is not correct to say that both utility scale PV and rooftop… Read more »
Richard and Herschel, thanks for teeing up a variety of solar topics. I’ll comment on two: utility-scale vs. distributed solar and the nascent technology support argument. It’s true that the… Read more »
Devin, Just two quick comments. 1) The line losses we’re talking about are really not that significant. Just a few percent… far less than the delta in costs between centralized… Read more »
I agree with the thrust of R Street’s thesis, that “A potential option to change institutional design would be to rely on clearer price signals to elucidate the costs and… Read more »
Scott, It is wrong to equate the grid impacts of energy efficiency with intermittent DG. Energy efficiency is an intrinsic quality that persists 24-7-365. Intermittent DG is a stochastic phenomenon. … Read more »
“Utilities can avoid building new generation and transmission facilities if enough power comes on-line at the distribution level.” This canard is only true if the distributed generation is 24-7-365 reliable.… Read more »
Ike, thank you for the thoughtful comment. I agree that accurate cost recovery and price signals are essential for efficient DG integration going forward. NEM includes compensation at a rate… Read more »
Devin, I have to point out a few errors in your comment. First, 100% backup for intermittent RE is reality and the data prove it. ERCOT regularly gets less than… Read more »
Thanks for a thoughtful run down of a complicated question. As a former School Board Chair, my Superintendent once told me that I should pick my fights carefully. I think… Read more »
Here is a wonderful article on the issue of utility structure and the issues of net-metering … Its conclusion … “Without realigned financial incentives, Massachusetts will not succeed in compelling… Read more »
I am in the process of modeling a CHP system. It is somewhat “pie in the sky” in that the efficiencies considered, whereas achievable, are high for small equipment. The… Read more »