Some Posts on DER Business Model


A major debate and effort is afoot.

  • I remain amazed that the canard about poor customers subsidizing solar customers under net metering goes unchallenged. 1. Solar customers pay a substantial share of their plant cost. All customers pay for all utility plant costs PLUS profit. 2. Solar generates electricity at or near load. Central station systems rely on poorly utilized T&D systems that lose 6-8% of energy simply due to resistance. 3. Solar comes on line at highest value periods in cooling-dominated regions. Base load plants have to run even when electricity is worth least. 4. Solar fuel prices never vary. Natural gas is the fuel with most volatile price, requiring expensive hedge strategies or direct fuel factor pass-throughs. 5. Solar improves load factor, resilience, and is modularly sized to match load increases. Solar shades roofs, reducing cooling load. Solar comes with federal subsidies. Solar generates more local jobs. Solar reduces air pollution, which disparately impacts the poor. From "Small Is Profitable," (Rocky Mountain Institute, 2002) through several more recent studies on Value of Solar (#valueofsolar), the empirical evidence is that distributed solar is worth significantly more than the retail price of electricity. This makes sense - since rate making tells us the retail price is what is costs the utility to make and deliver a generic kWh of usable electricity - right? So, bottom line is that distributed solar customers are actually subsidizing the utility and all non-solar customers when all they get is retail value through net metering.

    TJ Replied -

      • I disagree.
        A homeowner in Marin County puts solar on their home. They take their monthly bill from ~$750 down to ~100. A top line revenue loss to the utility of $650 per month.
        Renter in Richmond California pays ~$125 per month on their apartment. No chance of reduction.
        Problem1? The CSI (California Solar Initiative) dings the renter every month to create a fund (~$3bn) so that the homeowner in Marin can put solar on their >$1mm home.
        Problem2? The net reduction in revenue does nothing but exacerbate the high cost of transmission O&M and pension support etc etc. Its' just a big sucking sound...
        Now add net metering to,the equation as its seen to the renter in Richmond.
        While you make good points, a disadvantaged renter or struggling homeowner doesn't care that solar "shades roofs" especially when somebody points out to them they are paying every month on their PG&E bill to shade somebody else's roof. Especially when its a rich guy in Beverly Hills or Ross CA. Now, also take note that often these are people of color -- which can cause a monumental shit storm if one of their advocacy groups picks up on this situation. I would also add that perhaps your thesis would ring true if everybody was seeing rate reductions to correspond with all your stated qualities. We aren't.
        Here's my suggestion. The solar industry gets off EVERY form of subsidy ASAP (I could give two shits about gas and oil. Let them worry about themselves) before some "60 Minutes" type expose comes through and decimates the entire industry.
        Bottom line. REMOVE the subsidies. The solar industry will explode and become gas and oils worst nightmare simply because you've unlocked an unlimited market.

      • avatar92
        • Couple of quick points here: 1. The utility needs to serve customers regardless. If they don't facilitate the DER solar, they buy something else. That goes into rates, too. So it is a question of portfolio. 2. Incentives should be reduced as solar industry matures, but getting compensation for solar energy value is a first step, otherwise, prematurely ending subsidies cripples or kills a valuable, but nascent industry. So, the utilities needs a new business that evaluates and values the increasingly diverse range of options for meeting the demand for energy services, and that results in an optimized portfolio. That serves all customers - those that jump start solar by investing at their homes, and those that initially benefit as system members.

  • We have an opportunity here! First, demand levels are explicitly accounted for in traditional rate making. After you sum all the prudent costs, investments, and return, then you divide by expected sales to get a rate. When utilities saw ever increasing sales, this allowed them to over-earn by selling more between rate cases. But it sets up problems if demand falls below expectations. Possible fixes -
    1. Have more frequent rate cases to account for falling sales. Problem, this exacerbates regressiveness built into current cost-allocation approaches.
    2. Shift from historical to future test year in rate making. This holds utilities accountable for planning for the future. Problem, no one has a crystal ball, and simply rewards behavior to shape demand to forecasts (same problem with EEI recommendations in their paper).
    3. Stop calibrating profit according to kWh sales. This is the ultimately right answer, but requires some real negotiation and an implementation plan. We need to start now. We could start with the transmission and distribution functions - their costs are driven by customers, kW, and miles. And have less to do with kWh anyway.
    Other ideas exist but don't help - higher fixed charges, allocating stranded costs to new market entrants, premature elimination of subsidies to throttle back DER sector growth, accelerated recovery and gold-plating of existing infrastructure to restore old-school earnings. The stuff of the EEI paper, but not the future.