To incorporate distributed solar energy into the grid in an economically viable fashion, we need a basic understanding of state utility regulation for rate-setting and research into the value of distributed solar, says the Solar Electric Power Association (SEPA).
SEPA released a report this week, Ratemaking, Solar Value and Net Energy Metering -A Primer, because it says it wants to promote an unbiased, better understanding of net energy metering (NEM) by introducing both these topics. The report focuses on the different approaches taken by state regulators for rate-making, and underscores that there is no ‘one-size-fits-all’ approach for all situations, according to SEPA president and CEO, Julia Hamm.
NEM is a billing mechanism for electric utility customers with grid-connected distributed generation. NEM facilitates use of the electric utility system, allowing customers to virtually bank generation that is not used immediately, in exchange for kWh credits. They may draw on their kWh credits at other times using grid-provided kWh to offset consumption at times when the distributed generation system is not meeting their full energy needs, up to the total amount they have banked within the applicable period. Each utility’s NEM policies dictate how the credits remaining at the end of the period are rolled over to future periods, compensated or retired. Also, outside of the NEM billing arrangement, distributed generation customers displace energy usage, which has important ramifications within rate discussions, utility cost recovery, and customer perceptions of bill savings, SEPA says.
The organization says the primer integrates a variety of expert opinions from a full range of solar stakeholders, including regulators and utility staff, who seek to set the foundation for constructive and sustainable distributed solar transactions.
Utilities that previously could not envision significant amounts of grid-tied solar on their systems are now more interested in potential distributed-solar impacts, and examining immediate and long-term policy and rate design options.
For instance, in May, a blog post by SolarCity CEO Lyndon Reeves focused on how Northern California utility PG&E may be threatened by solar installations because of the effects of net metering on its business model.
Conversely, solar stakeholders also are evaluating mechanisms to support solar market growth and recognizing the need to work with utilities to maximize the value of this renewable resource.
SEPA says in conclusion that there is some misalignment between traditional cost-of-service rate-making and the introduction of customer-based strategies (distributed generation and other demand-side strategies), which are beginning to redefine the utility industry today. Until very recently, conventional cost-of-service studies have not provided very fine resolution, which would be needed to better understand the specific costs and benefits of having small but fast-growing amounts of distributed solar in the system.