Designing Electricity Rates In The Era Of Distributed Energy Resources
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Earlier this month, a group of solar and tech organizations and companies published a research paper intended to deal with designing electricity rates in an era becoming more and more about distributed energy resources.
The paper, Rate Design for a Distributed Grid, was published by companies that included TechNet, Sierra Club, the Solar Energy Industries Association (SEIA), Vote Solar, The Alliance for Solar Choice, CalSEIA, and SolarCity, and it describes a variety of benefits — such as a reduced need for electric generation, transmission, and distribution capacity, as well as lower energy costs and reduced price volatility — available for all consumers that stem from distributed energy resources such as rooftop solar.
“Rooftop solar is one of the most popular clean energy products in recent history among electricity consumers,” said Andrea Deveau, Executive Director of TechNet. “Utilities should embrace this and other reliable, clean and advanced energy technologies and integrate these resources into their procurement and grid planning in order to reduce electric system costs while lowering emissions without any compromise to system reliability.”
“Time and again, state public utility commissions and other researchers have found that the benefits of distributed solar equal or exceed the costs to electric ratepayers,” said Sean Gallagher, Vice President of State Affairs at SEIA. “Rather than using rates to slow down the solar revolution, utilities and regulators can help bring about a sustainable distributed energy future that takes advantage of the services that solar systems can provide to the grid.”
The premise behind the paper stems from “the growing popularity of rooftop solar and other distributed energy resources” which has resulted in some electric utilities having “recently begun seeking ratemaking changes that would discourage customers from generating their own power and otherwise buying less electricity from their utility.” According to the authors of the paper, these changes include including higher fixed charges and reducing compensation for exported energy — all under the guise of a “purported concern about costs being shifted among customers of the same rate class.”
Much of the basis for these faulty assumptions result from a rate design “Primer” sent to the National Association of Regulatory Commissions by the Edison Electric Institute.
“In that document, EEI makes three fundamentally incorrect assumptions about rate design: (1) that a very large proportion of a utility’s costs should be considered “fixed” costs; (2) that distributed generation and conservation do not substantially reduce those “fixed” costs or provide other benefits beyond avoiding the short-run energy cost; and (3) that rates based on volumetric energy usage and net metering invariably cause costs to be shifted from low-usage customers and those who self-generate to high-usage ones.”
The Rate Design for a Distributed Grid paper responds to these faulty assumptions by first examining the assumption that rooftop solar shifts costs onto other utility customers, which results in showing that “rooftop solar provides a wide range of benefits, including avoided generation, transmission and distribution capacity, lower wholesale market prices, reduced volatility, and avoided pollution.”
Rate Design for a Distributed Grid is available for download from the Solar Energy Industries Association.
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