Monday, May 25, 2015
Net Metering in Nevada
At Vox, David Roberts has a really good piece on the status of "rooftop solar" programs in Nevada. What I particularly like about this post is that it gives a fair shake to the problems such programs cause for incumbent utilities, even though Roberts (like myself) is broadly sympathetic to rooftop solar and so opposes utility efforts to stifle them. If you're interested in the future of renewable power and electricity markets, and want to get a perspective on the situation that doesn't gloss over the real transition problems that exist (often called "stranded costs"), I highly recommend you take a gander.
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I believe in freedom of religion: Society should accommodate people’s world views to the maximum extent possible provided people bear the cost of their own choices. So if you worship rooftop solar, more power to ya (ha!). Society should neither impede nor subsidize your practices. (Or if we subsidize, we should do so rationally and explicitly.) Thus, we should strive to identify how much any given individual should pay for electric service, analyze how rooftop solar affects the calculation, and allocate costs and benefits accordingly.
Bottom line: Some aspects of rooftop solar generate social benefits; some generate social costs; and net metering obscures it all. Thus net metering must die. We need a pricing mechanism that better signals the real costs and benefits.
1. How do we set electric rates? Simplified, we determine a utility’s cost to provide service, forecast the number of kWh the utility will sell, and divide the one by the other. This isn’t market-based incremental cost; it’s just a mechanism for cost recovery.
2. What does net metering mean? We use a meter to measure the number of kWh a household consumes, so we can use this number to calculate how much a customer should contribute to covering a utility’s costs. If a household generates its own electricity and pours it into the electric outlets, the power may flow out onto the distribution grid, pushing the meter backwards one kWh at a time.
But that’s fair, right? After all, the value of a kWh coming into the household should be the same as the value going out, right?
WRONG. A big component of the cost of electricity is reliability. Whenever you want an extra kWh, you have high confidence that your electric utility will deliver it, whether 3am or 3pm; your utility has incurred great expense to make this so. In contrast, does the electric utility have high confidence that it can get an extra kWh from you, 3am or 3pm? No ; your generator is not reliable. Thus, the kWh that the utility delivers to you is more valuable than the kWh you deliver to the utility – but net metering obscures this crucial fact.
3. What would be a better pricing system?
A. Pay for reliability separately from energy. Pay a fixed “standby” rate to reflect the cost of all the plant that’s necessary to have electricity ready if you need it. And pay a separate (and small) energy charge to reflect incremental cost (e.g., fuel, pollution, etc.) In this regulatory environment, net metering would make more sense because the energy cost per kWh would (more closely) reflect the cost a utility can avoid by not generating that extra kWh.
B. Or let the energy price vary to reflect time-of-day or market prices. This mechanism would reward solar generators for generating during periods of peak demand.
C. Adopt “revenue decoupling,” whereby a utility’s sales have little/no impact on the utility’s profits. This rate design leaves utilities indifferent about whether a customer has rooftop solar or not.
4. Arguably, net metering violates federal law. When a utility sells me electricity, I consume it. But when I generate electricity and sell it back to the utility via net metering, is the utility planning to consume this energy? No, the utility will sell it to someone else. That is, now I’m an electric wholesale generator – and may require a license from the Fed. Energy Reg. Comm'n.
5. If you care about efficiency, should you be enthusiastic about rooftop solar? Unless you think there are no economies of scale, or that line losses for transmission are enormous, wouldn't you suspect that utility-scale solar panels will be more efficient than rooftop solar panels?
Just sayin'. But hey, it's your religion; you don't need to justify it to me. You just need to pay for it.
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