Electricity Currents A survey of current industry news and developments
Net Metering: Growing, Worrisome Trend Policymakers and regulators in many parts of the world are supportive of any and all renewable energy resources, from the giant 392 MW concentrating solar power (CSP) plant being built by BrightSource Energy Inc. at Ivanpah in the Mojave Desert in Southern California, down to a 10 kW solar PV system on someone’s roof. They receive subsidies and generous feed-in tariffs depending on site, size, and governments’ largess. Thus, California’s governor, Jerry Brown – whose name is a misnomer, since he’s strictly green – says that the state’s mandatory 33 percent new renewable goal for 2020 is a mere starting point for more serious targets to follow. He has also been talking about 12 GW of PVs on California roofs by 2025. That, for anyone who needs reminding, would be the equivalent of building 12 nuclear reactors with a 1,000 MW capacity each. So maybe his old nickname, Governor Moonbeam, needs to be updated to Governor Sunbeam.
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In Electricity Currents This Month: Net Metering: Growing, Worrisome Trend . . . . . . . . . . . . . . . . . . . . . . . . . . . Is Pioneering UK Abandoning, Competitive Electricity Market? . . . . . . . . . . . . . . . . . . Confronting Capacity Shortfall, Texas Raises Reserve Margin . . . . . . . . . . . . . . . Electric Vehicles: A Blessing, but Only Up to a Point . . . . . . . . . . . . . . . . . . . . . . . .
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Electricity Currents is compiled from the monthly newsletter EEnergy Informer published by Fereidoon P. Sioshansi, President of Menlo Energy Economics, a consultancy based in San Francisco. He can be reached at
[email protected].
Is Pioneering UK Abandoning Competitive Electricity Market? The UK is generally credited with being among the earliest countries to successfully implement a functional competitive electricity market to replace a vertically integrated industry with a strong and centralized planning bureaucracy. While there have been numerous hiccups along the way, requiring multiple modifications of the original market design, the grand experiment is generally considered a success. Among the main indicators of the UK’s market success is that private investors, by and large, decide what kind of plants to build, how to operate them,
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Among the speakers at the forum was Terry Boston, CEO of the PJM Interconnection, the biggest organized market operator in the U.S. His message was a stereotypical good news-bad news story. He said the PJM grid, with a few extra bells and whistles, could conceivable recharge as many as 25 million EVs if the charging is properly synchronized between midnight and 7 a.m. But ‘‘if all of those (drivers) came home at 5 p.m. and plugged in (their EVs), we would have a voltage collapse.‘‘ How many EVs would it take to break the PJM system? Boston said if a million EVs had attempted
to tap into the PJM network on a hot day similar to July 21, 2011, ‘‘. . . when the grid labored under record loads, a massive blackout would have occurred.’’ PPUC chairman Robert F. Powelson, rhetorically asked, ‘‘Should we be worried? . . . Who pays for it? That’s a question as you make upgrades to the distribution system.’’ EVs have not arrived in large enough numbers to collapse the network, but one has to prepare for the days when they do.& http://dx.doi.org/10.1016/j.tej.2012.07.008
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A few years ago, both the 33 percent new renewable goal and 12 GW of solar PVs would have been regarded as visionary but not in any way realistic. California has already passed the 20 percent new renewable target and there is optimism that the 33 percent target can also be met by 2020 as required. But what about the solar rooftop PVs – or more broadly speaking, any type of distributed generation (DG), also called on-site generation or customer-side generation – all referring to anything that produces electricity or some other form of energy such as hot water on the customer side of the meter? How likely are the types of numbers thrown around with regularity by the likes of Gov. Brown? The short answer is that a lot more is possible, and the ultimate number critically depends on: The prevailing grid-supplied retail electricity rates – which are broadly rising; The cost of on-site generation – which is broadly dropping; and The prevailing net metering regulations – which, as we’ll explain, have had some unintended consequences. 6
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In high-cost places like Germany or California, the juice provided by the grid is already expensive and likely to become even more costly over time. In the case of Germany, the country’s decision to shut down its perfectly safe operating fleet of nuclear reactors prematurely by 2022 and partially replace them with more renewable generation is likely to lead to higher prices – and your guess is as good as ours as to exactly how much higher. The story is much the same in California, not because its nuclear plants are being phased out, but because of the growing renewable component, grid modernization, the effect of the climate bill, and other factors all contributing to rising electricity prices. Making matters worse – as extensively noted in the past in this space – are the rising tiered pricing that makes grid-supplied electricity progressively more expensive as consumers use larger volumes. Already, many find it cost-effective to invest in DG as well as energy efficiency improvements to avoid the excessively high top residential tiers. By all indications, the top tiers in California will become more expensive, perhaps as high as 50 cents/kWh for heavy users by 2020, if not sooner. The Electricity Journal
The cost of on-site generation, by contrast, has been rapidly falling. It is only a matter of time before more consumers discover that they’re better off producing some or nearly all their juice on their own – while at the same time cutting down overall consumption by investing in efficient appliances, insulation, day-lighting, and so on. For some consumers, becoming zero net energy is feasible and may become cost-effective if retail rates continue to rise. The third critical leg of the three-legged stool, however, is regulations on how much consumers are paid for the excess DG power that is fed into the grid. This, it turns out, is highly critical and has become a contentious issue – and likely to get much more pronounced with passage of time. The reason is simple. Since electricity generated by solar PVs varies by solar insolation, a lot is produced during mid-day and early afternoon, especially during the summer months, typically more than the consumer needs. Since storage tends to be expensive, consumers are allowed – in fact actively encouraged – to feed the excess generation into the grid. It is, after all, carbon-free renewable energy and it costs little to generate – setting aside the initial installation cost. Net metering laws – which come in many varieties – typically allow consumers to get a credit on their monthly electricity bills based on how much is fed into the grid. For consumers feeding the grid, instead of consuming, it appears logical to reward them for their contribution. Every kWh feeding the grid results in a corresponding kWh that no longer has to be generated upstream of the meter, is how the argument goes. This apparently logical line of reasoning, however, has grown into a multi-billion-dollar headache for the utilities – and regulators – and the problem is likely to become much more noticeable in countries and states with generous net metering laws. It is the typical unintended consequences that comes to bite. There are a number of issues associated with the growing numbers of consumers who are dumping their excess electrons into the grid: July 2012, Vol. 25, Issue 6
First, the excess generation, mostly during peak demand periods in summer, has to be absorbed by the distribution network in ways and at times that are not necessarily convenient for the network operator. Second, consumers who generate a lot and consume relatively little, end up paying smallish monthly bills. Carrying the scenario a step further, for some with sizable generation, their bills can approach zero at some point. What they save, however, must be recovered from the remaining customers, whose retail rates are likely to further increase. As more consumers react to rising rates by installing their own DG, the rate recovery issue becomes more acute, eventually becoming unsustainable. A far-fetched scenario? Not so. Some 43 states in the U.S. currently have net metering laws in place, many copying California’s pioneering – and generous – regulations that were enacted in 1995 and went into effect in 1996. At the time, solar PVs were considered a rather expensive novelty. Only the affluent greens – a small sub-group of consumers – could afford them and only a handful of contractors were in business to install and service rooftop solar PVs. It was very much a niche market in the mid-1990s. In the last few years, however, the uptake has been quite remarkable, growing at 56 percent per year between 2003 and 2010. According to the Energy Information Administration, there were fewer than 7,000 customers on net metering in 2003 in the U.S., 156,000 by 2010, and lately growing at double-digits per annum. What is noteworthy is that roughly half of the U.S. total is in California. Why all the fuss about something as trivial and inconsequential? The answer is that while net metering accounted for a mere 0.1 percent of total U.S. electricity sales in 2010, its exponential growth has become worrisome in places like California, where the 5 percent cap of aggregate demand specified by the regulators is projected to be reached by 2015 (and possibly sooner). The situation, however, is not unique to California. 1040-6190/$–see front matter
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As described in a New York Times article in early June, the problem has become noticeable not only due to the growth of net metering, but its growing impact on utility revenues. The NYT articles mentions a school district near San Francisco with 51 sites meeting 95 percent of its electricity needs from rooftop PVs, saving the school $3.5 million annually. What the school saves in lower electric bills, however, must be covered by other customers, since it mostly represents fixed costs, which do not go away when volumetric consumption falls. What makes the story noteworthy is not just the sheer volume of self-generation and resulting bill savings, but the fact that the installed PVs generate the most during summer months, July and August, when the schools are closed, with virtually zero consumption. The net effect is that the local distribution network has to take quite a lot of KWs and kWhrs during the summer months, while meeting the schools’ needs during winter months, when PV generation tends to be minimal due to short daylight hours and overcast skies. The customer, who is paying virtually nothing due to net metering, is imposing a significant cost on the grid, which acts as a massive battery, balancing unpredictable shifts in generation and consumption across hours and seasons. While the school district saves a hefty $3.5 million in reduced electricity costs, those costs must now be spread among the remaining customers. Commenting on the incidence of costs and savings, Steven E. Malnight, a vice president at Pacific Gas and Electric Company (PG&E), was quoted in the NYT article saying, ‘‘They (customers on net metering) use the grid essentially as ‘a big battery’ without covering the cost to maintain it.’’ He has a valid point, and the problem becomes even more troubling in places where distribution companies are separated from generation, transmission, and retailing, as in Texas or Australia. It makes life untenable if you are getting paid based on volume consumed, your costs are mostly fixed – as is the case for a distribution company – and the volume goes down while costs 8
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remain fixed or even increase due to the increase stress imposed by too much distributed generation during sunny periods. According to Dan Skopec, a vice president at San Diego Gas and Electric Company (SDG&E), California’s net metering law could balloon to $1.4 billion a year by the time the state reaches the 5 percent cap. That would be too big to absorb or ignore, even for the three giant investor-owned California utilities, although utilities there operate on a decoupled basis, where they can adjust their rates and revenues based on actual sales. This may cushion some of the immediate pain – but rising rates remain cause for concern even if revenues can somehow be recovered. One way to stop the revenue erosion is to limit the size of net metering allowed. But that, as demonstrated in California and elsewhere, may prove unpopular. Renewable energy, after all is green, carbon-free, the fuel is free, and it generates local jobs. Few regulators would be foolish enough to say no to more rooftop PVs – it would seem politically, economically, and environmentally wrong. Consumers stand to gain from lower electric bills, more contractors find something to do, and there are reduced emissions from power plants. The problem is that this is mostly a zero sum game; what consumers with solar PVs gain, utilities lose. Sooner or later – and the sooner the better – a way must be found to reallocate the incidence of the costs and benefits. The issue has already become controversial. David Owens, executive vice president at the Edison Electric Institute, the lobbying arm of U.S. investor-owned utilities, told The Times, ‘‘Lowincome customers can’t put on solar panels — let’s be blunt. So why should a low-income customer have their rates go up for the benefit of someone who puts on a solar panel and wants to be credited the retail rate?’’ The issue surfaced in California last year, when San Diego Gas & Electric Company (SDG&E) proposed a network access fee that was promptly rejected by consumer advocates as a PV tax, an argument sheepishly accepted by the California The Electricity Journal
Public Utilities Commission (CPUC). So the CPUC has put off that tough decision for now, though the issue will come back to bite it with a vengeance. A few other states are considering introducing new fees. The NYT article noted that when Virginia regulators doubled the size of home PV systems eligible for net metering to 20 kW last year, they allowed utilities to start
charging a monthly fee for systems larger than 10 kW. That is an overdue step in the right direction. After all, that question, and others like it, are not likely to go away until a serious fix is found, even if it’s one that’s politically unpopular.& http://dx.doi.org/10.1016/j.tej.2012.07.005
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