Is there a way to integrate increasing amounts of rooftopsolar enabling customer choice and a cleaner grid, while ensuring that utilities are compensated for lost revenue?
It’s a question on the minds of many experts in the power sector. For Steve Corneli, senior vice president of sustainability, policy and strategy at NRG Energy, the answer is not to put up barriers for solar adoption by adding grid charges, in hopes that incentives might run out and rooftop solar will eventually go away.
“Our fundamental motivation is to think through a variance on [solar and utility] policies that will actually satisfy the regulators’ obligation to make sure the utilities get their cost back and rates are just and reasonable without acting like a tire-slasher or a roadblock,” said Corneli, in an interview on the sidelines of a Public Utilities Fortnightly event last week in Washington, D.C.
“We think there’s this big amount of space in between where we can not only have this transition [to greater amounts of distributed energy], but we can have this transition in a smart way as opposed to waiting, sticking the finger in the dyke until the wave comes over the top,” he continued. “And the wave is going to come over the top when the cost of rooftop solar and batteries and smart homes and all these things gets to just a bit lower than they are now.”
As technology costs drop and distributed energy makes up a greater and greater share of electricity production in the United States (possibly exceeding 20 percent in the 2020 timeframe), the grid network will continue to play a critical role, said Corneli, echoing findings from a recent report by the Rocky Mountain Institute.
Simultaneously ensuring enhanced grid capability while embracing distributed assets will require changing the status quo of net metering, which was set up as a transitional mechanism, Corneli said. But it does not require raising fixed charges or adding monthly fees.
The better model, in Corneli’s view, is to treat solar like energy efficiency, and spread the network costs from reduced electricity demand from rooftop solar across the entire rate base.
“If the utility’s not getting all of its money back, and it’s because of solar, and not because of efficiency or because of changing population or a changing industrial base, then that money could be analyzed, identified, put in a pool and spread [across] everybody just like the costs of energy efficiency are,” he said. “Everybody pays for that, just like the costs of transmission. Why not do it the same way [with solar]?”
Taking this approach, everybody pays a tiny amount to contribute to a clean, distributed energy future and the societal benefits that provides, at the same time as utilities are able to recuperate costs. If revenue losses are reasonable and proven, most state laws already allow utilities to recuperate costs from the customer.
“It’s sort of interesting as a thought experiment,” said Corneli, who seemed well aware that he was saying something controversial. “Are you interested in solving the problem of getting your costs back, while supporting innovation and change to a cleaner more distributed economy? Or are you just interested in stopping progress?”
"Solar is the bad boy; energy efficiency is good"
It’s fair to think about solar customers paying to use the utility’s equipment -- wires, transformers, etc. But it’s not fair to say that a customer needs to be charged more because they’re generating their own electricity, on their own roof, from solar panels they bought from a competitive company, according to Corneli.
Rooftop solar customers are only using the utility’s wires to the extent that they can’t get all of their power from their solar panels. There is a cost associated with that service that a regulator would say a customer should pay for. But that cost is usually driven by how much grid energy a customer uses, and solar customers use less grid energy. Corneli’s point is that these customers shouldn’t be charged more, because they’re generally using less electricity.
“Solar is the bad boy; energy efficiency is good, smaller refrigerators are good, turning your lights out and having a smart energy...system is good," said Corneli. "But [with] solar, we’re losing revenue there, so we’ve got to charge you."
“If you think about it, if I put LEDs in my house, I don’t have to pay a higher fixed charge than my neighbor who’s got incandescents in his house. I’m using less energy, I’m paying less for the utility’s transformers and wires, but the utility doesn’t come along and say, ‘Steve, you’ve got to pay $10 per month compared to your neighbor who is using old technology that is inefficient,’” he said. “But somehow, when it’s solar, it seems like it’s OK for them to come and say, ‘You’ve got to pay $50 or $20 per month, and your neighbor doesn’t have to pay anything.’”
"There are social benefits [from having] a more efficient, cleaner system, and we want to incentivize people to do that, in part because there are benefits to everybody,” he continued. “Well, I think there are benefits to everybody from having a cleaner, more distributed energy system. It’s coming anyway, so there are not only benefits to everybody from having it, there are benefits to everybody from figuring out how to make it work.”
This is the message NRG is developing in regulatory proceedings like New York's Reforming the Energy Vision, California's distribution resources plan and others. So far, most utilities have taken a different approach, opting instead to penalize rooftop solar users, Corneli said. While he didn’t name names, Arizona, Wisconsin, Indiana and New Mexico are some states where utilities have already established, or are currently considering dedicated fees on rooftop solar customers.
There are options, "but there's got to be a payment"
Earlier this month, Arizona Public Service Company (APS) proposed a $21 “grid access fee” for residential PV customers, up from its current $5 fee. This comes on the heels of Salt River Project approving a roughly $50 per month fee on solar customers through demand charges. Tucson Electric Power and Arizona’s Trico Electric Cooperative are focusing their latest reforms on reducing net metering credits.
“While every utility is unique, I think we’re all kind of heading in the same direction: we don’t need to change the rate structure -- we need to modernize rates,” said Barbara Lockwood, general manager of regulatory policy and compliance at APS, who previously led the utility's energy innovation division.
Experience to date shows that a $5 monthly fee has done nothing to discourage rooftop solar adoption, she said. Last year was a record year for rooftop solar adoption in APS territory, up 10 percent from 2013 -- from before the monthly fee was put in place. APS hit another record in the first quarter of 2015, receiving more than double the number of rooftop solar applications than in the same period last year. In this context, boosting the fee to $21 per month is not going to kill the solar industry, according to APS.
As utilities adapt to a new distributed energy future, “We know that the solar industry can adapt as well,” said Lockwood.
APS believes rooftop solar customers in Arizona -- which has the second-highest penetration of solar in the country -- should really be paying a fee of about $67 per month for use of the electrical grid. The utility opted for a moderate step to facilitate compromise with the solar industry, said Lockwood.
According to David Owens, executive vice president of business operations and regulatory affairs at Edison Electric Institute, the power sector is investing $23 billion per year in the distribution system in order to facilitate customer choice. These investments are not to enable the option of rooftop solar, but rather to have a number of other resources available for when the sun isn’t shining. That means investing in new technologies like monitors, sensors and automation controls -- all of which the utility needs to recover costs for.
“The reality is, if the ‘grid of things’ is to be responsible for maximizing choice to the customer and value, it requires a recovery of that investment,” said Owens. “You can do it through demand charges, you can do it through a fixed charge, you can do it through a grid charge, or something that’s unpopular in the electric industry -- straight fixed variable charges.”
“There are a whole array of approaches," said Owens. "But the fundamental concept is that all customers rely on the grid, so there’s got to be a payment."