Two seemingly unrelated announcements drew much attention in the electric utility industry recently. First, the Edison Electric Institute and the Natural Resources Defense Council jointly recommended changing how utilities should be regulated. Second, Duke Energy announced it will sell 13 Midwest merchant power plants. These announcements are actually related, and arise because the traditional utility business model is crumbling, due to several factors:
- Load growth has declined, due to a slowing economy and greater use of renewable energy and energy efficiency.
- Utilities are no longer able to obtain economies of scale by building ever-larger plants.
- New regulations have resulted in higher costs for coal and nuclear plants.
- Plentiful supplies of shale gas have caused natural gas prices to decline.
- Utilities face high costs for grid modernization.
The EEI/NRDC announcement recommends several changes for regulating utilities. These changes are intended to incentivize utilities to deploy more clean energy while remaining financially sound.
A key factor for getting the utility business model right is correctly setting the rules for pricing distributed generation. Today many utilities use net metering to pay rooftop solar owners for the excess electricity the solar panels produce. The net metering rate is typically set at the full price the utility charges for electricity, or at the utility’s wholesale cost of electricity. Neither measure fully reflects the costs and benefits that rooftop solar provides to the electricity grid. Getting the new utility business model right depends, in large part, on setting the correct pricing for distributed generation.
To read this full blog post, please visit Environmental Defense Fund’s Energy Exchange.
Is net metering a fair system for compensating owners of distributed generation? What are some of the benefits that solar distributed generation provides for the grid, and what costs does it impose?
Most States already charge both transmission and distribution fees as part of the electric utility bill. So now, utilities want to add on yet another fee for those ratepayers that… Read more »
I agree that regulators should identify the benefits that distributed generation brings to the grid, and pay the DG owners for those benefits. By the same token, DG owners should… Read more »
Scott, I agree it’s time to “confront this obfuscation.” 1. The game changer is distributed dispatchable generation, not distributed intermittent generation. The missing ingredient to transform the electrical world is… Read more »
I agree that storage would be a game-changer for distributed generation. Tesla’s announcement of a $5 billion dollar battery factory may be an indication that the arrival of commercially viable… Read more »
To answer the questions: Yes, I think net metering is a fair system for compensating owners of distributed generation. (This is not to suggest that tax credits are not also… Read more »
The rates a utility customer pays are based on the average cost for the utility to serve an average customer over the course of the year. Net metering customers don’t… Read more »
Changing Times?? The premise of the posting seems misplaced. Duke Energy’s exit from the merchant power business seems unrelated to the regulated utility business. If there is a corelation, the author should… Read more »
My thought was that Duke’s merchant business and their utility business face the same type of challenge – how can they recover their operating costs and earn a return as… Read more »
John, Sorry, I still do not get it. I certainly do not believe that renewables have carved out a substantial piece of the market. Whatever contribution they have made, seems… Read more »
I am rarely the one to bring up a social justice perspective to conversations. The question should not be whether net-metering is a fair system for compensating the owners of… Read more »
One measure of the fairness of a rate plan, such as net metering, is whether it imposes unreasonable cost shifts on other customers.
I’m going to speak as a customer with a net metering contract. When net metering was first addressed, most Utilities saw it as a way to avoid starting up as much… Read more »
I believe more states will investigate the possibility of replacing net metering with a “value of solar” tariff which quantifies the costs and benefits associated with distributed solar generation, like… Read more »
The debate on net metering has become twisted and misplaced. The fundamental issue is: can a customer reduce their electricity purchases from a utility without having to pay a penalty… Read more »
It is very tiresome to see wind and solar power advocates continue to pretend that there is no difference between wholesale and retail and that all kWh are of the… Read more »
Solar and wind bring no benefit to the utilities from “deferred utility investment.” Accommodating intermittent generation has actually required accelerated utility investment. 2,300 circuit miles of new transmission lines were… Read more »
Several years ago when Dominion Power first introduced the ‘standby’ charge – a fee paid to remain attached to the grid, I spoke against it. A standby charge seemed to… Read more »
Ike Kiefer makes a pretty good case that net metering is unfair, and I generally agree with him. But there are a couple of points that soften that position. They… Read more »
In reply to Roger: Point 1. My analysis above is not specific to battery storage. The cheapest storage today is pumped hydro, and that is what was calculated in the… Read more »
Several points … in 2010 only 2.45% of our electricity was produced by solar and wind. PJM has just released a report, done with GE, stating that the grid can… Read more »
In reply to Jane: The authorship of the 30% penetration study is GE Energy Consulting, not PJM. As just one tiny example of the absurd assumptions made throughout, they only… Read more »
Based on my recollection net metering did not used to be fair to small distributed generation. Maybe that has changed. So I pray.
Ike, Oh Dear! Thanks for taking the time to respond and you are right … the 30% with no major grid issue was written by GE Consulting as I recall,… Read more »
Jane, Buried in all the material you provided above is the very dramatic assumption of cost-effective, high-capacity energy storage. With this pixie dust we can make pigs fly. However, it… Read more »