As today’s utilities try to identify an "everybody wins" solution to grid-tied distributed energy generation, they may find themselves revisiting the age-old question, Why buy the milk when the cow is free?
Consider this: If a dairy that makes daily deliveries of milk to customers within its service region were asked to supply significantly more bottles during a baby boom, it would not be easy, inexpensive, or risk-free to ramp up services for an unspecified period of time (after which, demand might fluctuate greatly).
However, what if Farmer Joe down the road and a few of his friends offered to provide the quantity of milk their domestic cows produce that exceeds the amount consumed by their families?
Under the terms of this agreement, the dairy would pay Farmer Joe and his friends a fair price for the milk needed to fill its ordersor would give them "bankable credits" for every gallon they supply — and it would return the favor, furnishing the farmers with milk (either at market cost or in exchange for the credits) whenever they run low.
There is just one catch: All of the milk would continue to be marketed, collected, quality-inspected, distributed, insured and branded by the original dairy, meaning that it would retain all overhead costs and cover all of the exposure involved in a diary business.
Greatly simplified, that is the situation in the utility industry today, as it considers how and when to incorporate distributed generation into its grids via a system called net energy metering (NEM).
Net energy metering is a billing mechanism for electric utility customers with grid-connected distributed generation. It facilitates the use of the electric utility system, allowing customers to virtually "bank" generation not used immediately in exchange for kilowatt-hour and/or financial credits.
Those customers subsequently may draw on their credits at other times to offset consumption and/or charges when the distributed generation system is not meeting their full energy needs up to the total amount they have banked within the applicable period (often 12 months). Specific utility NEM policies dictate how any credits remaining at the end of the period are rolled over to future periods, compensated or retired. Furthermore, somewhat independent of the NEM billing arrangement, distributed generation customers displace energy usage directly, which has important ramifications within rate discussions, utility cost recovery and customer perceptions of bill savings.
Indeed, net energy metering always has been popular with solar stakeholders and well received by utility customers, but at least somewhat controversial among utilities and cautiously considered by regulators. Distributed generation — and especially customer-side distributed generation — introduces challenges to distribution system engineering and design standards as well as ratepayer equity and questions the regulatory compact that has directed utility investment and operations for over a century.
Net energy metering is not the only tariff mechanism advocated by distributed PV stakeholders as a means of providing financial value for distributed generation. For example, select jurisdictions and utilities have introduced feed-in tariffs (FITs) or other ways of structuring transactions between the utility and grid-connected distributed generators.
However, NEM is by far the most common distributed generation billing mechanism in the United States today. Between 2011 and 2012, the number of newly installed solar NEM systems increased from 61,400 to 89,620 — a 46% annual growth rate — bringing the cumulative total to 302,380 NEM systems. By year-end 2012, U.S. solar generation under net metering totaled more than 3,500 MW.
A Solar Net Energy Metering Primer
Now, the Washington, D.C.-based utility trade group Solar Electric Power Association (SEPA) has released a report,"Ratemaking, Solar Value and Solar Net Energy Metering A Primer," that outlines and evaluates NEM efforts to date as a way to help industry players identify their own best solution to the problem.
In a rapidly changing solar environment and as the penetration of distributed solar generation is increasing, the primer is designed to offer a balanced viewpoint on net energy metering by providing a basic understanding of state utility regulations, with a focus on rate-setting and distributed solar-value research.
"The report highlights the different approaches taken by state regulators for ratemaking and underscores that there is no ‘one-size-fits-all’ approach for all situations," said SEPA President and CEO Julia Hamm.
The primer integrates a variety of expert opinions from a full range of solar stakeholders, including regulators and utility staff, who together 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 now are more interested in potential distributed-solar impacts, and are examining immediate and long-term policy and rate design options. 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 worked with multiple stakeholders representing all facets of the NEM discussion to balance perspectives from across the growing solar distributed generation and net metering markets," said Eran Mahrer, vice president of Utility Strategy at SEPA. "The goal of the primer is to give readers a common understanding of key industry terms that can benefit discussions aimed at creating a sustainable future for distributed generation."