New Utility Business Models Must Address Solar Integration

by Bob Shively, Enerdynamics President and Lead Instructor

How utilities should compensate customers for solar power put onto the grid and whether they should charge customers for costs of grid connection are key issues that utilities face in 2016 and beyond.

Over 44 states have mandatory net metering rules. These rules require the utility to compensate solar customers by paying the retail rate and allowing the customers to “bank” power generated when the sun is shining and use it to offset power needs at night or on cloudy days.

Unfortunately, there are real issues associated with net metering, and it is hard to gain agreement that the retail rate is truly the right number to pay. Issues include:

  • whether time-sensitive power supply costs and fixed costs to maintain transmission and distribution infrastructure are being shifted from solar to non-solar customers
  • whether the costs of required distribution upgrades are allocated fairly
  • whether solar customers are being compensated for additional values they provide to the system.

Such issues have sparked discussions in more than a dozen states at either the legislative or state commission level about whether something other than net metering is more appropriate.

In most communities public sentiment strongly supports solar energy. Utilities’ requests to move away from net metering ignites accusations that utilities are anti-solar. Some utilities and commissions are seeking a middle ground that keeps net metering but:

  • adds minimum variable or fixed fees
  • moves net metering to time-of-use rates so that bill netting reflects the time value of power provided and/or used[1]
  • creates value-of-solar tariffs that pay a unique price based on calculated value to the grid

We are sure to see many debates, proceedings, and possibly some regulatory decisions on this issue during 2016.  

Meanwhile, utilities and their regulators must be making longer-term decisions on how to react to growing distributed resources (DR) including rooftop solar but also other forms of customer-owned generation, storage, and price-responsive load.

While tweaking the status quo may push the issue off a few years, it is unlikely to create a long-term sustainable business model for utilities unless the growth of DR proves to be an unfulfilled expectation. Utilities instead must plan now for a different future and include DR in their resource planning processes. And utilities and regulators must figure out how to pay for DR in a manner that creates economic benefits for all and creates mechanisms to encourage the proper investment for the right resources.  

Such change will neither be easy nor quick. Transformations always create winners and losers, and in a regulatory environment potential losers fight long and hard to avoid these outcomes. Since most of the pertinent regulation will happen at the state level, the possibility of 50 different solutions exists. It will be interesting to watch in 2016 how the leading states address these issues and how the regulators and utilities in the remaining states respond.


Footnotes:

[1] See for instance the California Public Utilities Commission proposed decision dated December 15, 2015 summarized here: http://www.utilitydive.com/news/california-regulators-propose-to-keep-retail-rate-net-metering-for-solarwi/410873/

 

 

About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
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