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?