"Distributed generation" is one of a half dozen or so terms used to describe technologies that produce electric power at or close to the point of consumption. Unlike traditional utility-scale power plants, DG technologies, which include rooftop solar photovoltaics, microturbines and so forth, interconnects to the electric power grid south of the substation. In other words, DG is connected directly to the distribution network – or connected through the customer's meter.
In an Intelligent Utility editorial, Rick Tempchin, the executive director for retail energy services at the Edison Electric Institute, a Washington D.C.-based trade association for investor-owned electric utilities, expressed "concerns" about the long-term implications of existing net-metering policies, which give consumers who generate their own electricity a credit for excess electricity they sell back to the grid. Currently, 43 states and the District of Columbia have created net-metering policies.
Tempchin writes:
For electric utilities, net metering holds great implications. The most obvious is the potential effect that net metering will have on a utility's revenue stream. When customers generate their own electricity, they're of course buying less of the utility's electricity, which leads to revenue losses. Lower revenues in turn affect a utility's growth prospects.
Growth is important for electric utilities because it enables them to access capital markets at reasonable costs. This is essential if a utility is to continue making investments in its electric system—investments that help to further expand DG opportunities for self-generating customers, as well as to ensure continued system reliability for all customers.
Lower growth prospects, though, aren't the only downside to net metering for utilities. A drop in revenues also makes it more difficult for utilities to meet their fixed cost obligations. These fixed costs can include customer service costs, system maintenance costs, investments in distribution wires and equipment, and if the utility generates its own power, investments in generating plants. It's important to point out that even when self-generating customers begin generating a portion or even all of their electricity, the utility continues to incur fixed costs on their behalf by standing by to provide back-up electricity service when the self-generating customer's facilities aren't operating, or aren't meeting their full needs.
In many states, the value of the credits consumers get is different for solar than other forms of distributed generation like fuel cells or microturbines. For example, in California or Massachusetts, customers with solar receives the "retail rate" for net-metered electricity while combined heat and power fuel cells or gas turbines receive the "wholesale rate." The wholesale rate is virtually always significantly below the retail rate.
Ironically, the cost of natural gas needed to produce electric power onsite is frequently higher than the value of the credit received for net-metered power. As a result, net metering with gas-fired DG becomes a net loss for the consumer. As far as I know, the rooftop solar industry has not supported net metering price parity for natural gas DG.
Unlike natural gas DG, the rooftop solar industry would probably not exist – or, at least not exist at its present scale – without favorable net-metering policies.
Rooftop solar PV installed on a home or apartment building will usually generate electric power when it is least needed by the homeowner. Five days of the week, nobody is at home when solar PV is generating most of its electric power. Without net-metering policies allowing you to sell back to the grid, installing solar PV on the roof of your house would be little more than a vanity project.
The rooftop solar industry's leaders, including SolarCity, Sungevity, Sunrun, and Verengo, established the "Alliance for Solar Choice (TASC)" a few weeks ago to do battle on behalf of net-metering policies.
Surprisingly, I tend to agree with Tempchin that net-metering may have perverse economic consequences, especially in the context of rooftop solar in the residential sector. Why should your neighbors pay you more than the market rate for electricity generated on your roof during the day? They shouldn't and that is the pickle for many net-metering policies.
Nevertheless, I disagree with Tempchin and anyone else who suggests that we should roll back net-metering policies for solar or any other form of DG.
Let's treat the disease, not the symptoms. Net-metering policies are the latter, not the former. The electric utility business model is broken. Rather than burn the Earth in political battles over net metering, we should be reimagining the regulatory compact between utilities and ratepayers and regulators.
