Risky business? … On the evils of smart grid technology

New business models and emerging energy technologies, like rooftop solar, microgrids, and distributed generation could put affordable electricity and the reliability of the electric grid at risk unless the harmful effects of ratemaking subsidies are addressed. That is according to “Changing Uses of the Electric Grid: Reliability Challenges and Concerns,” prepared for the Electric Markets Research Foundation (EMRF) by Build Energy America, a Washington, D.C., energy consulting firm.

Credit: numforest

“The new technologies being introduced to the grid have the potential to provide significant benefits. However, it’s important to understand that the integration of these technologies into the grid will increase — not decrease — overall grid costs,” said report author Steve Mitnick. “Success ultimately depends on the ability of the grid to accommodate these new uses while safeguarding affordable electric power.”

The study compared the traditional grid-based electric utility service model based on the sharing of all electricity costs by all ratepayers with a new business model reinforced by subsidies and incentives. The report points out net metering as an example of potential impacts.

Most of the 600,000 households nationwide with net metering are paid the full retail price for the extra electricity sold to a utility, the report explains; however, the utility’s purchase of the excess electricity covers only part of its costs. In fact, the full retail rate paid by utilities under net metering reflects a payment of more than twice what the utility actually saves by buying the power, the report says, so other customers must make up the difference, subsidizing homeowners with rooftop solar and net metering.

The study says, “Net metering is a double whammy to the utility. It is an incentive for customers to leave the grid, thereby reducing their contribution to the fixed costs of maintaining the grid. And it imposes additional costs on other customers, most notably the increased costs of integrating customer-owned generation into grid operations,” such as the investment to accommodate two-way electrical flows needed for customer-owned generation.

Continuing the net metering subsidy is not sustainable, the report contends.

“Either the funds for continued investment in the grid will be impacted, resulting in concern over the degradation of the grid, or the costs of maintaining the grid to those still paying for it will become too great to withstand political scrutiny,” the study warns. “New ways must be found to ensure that everyone continues to pay their fair share for what the grid does for them.”

While the study acknowledges the benefits of rooftop solar and other distributed renewables for the grid, it says that net metering results in a cross-subsidy from non-generating customers to customers generating their own power, providing the wrong price signals to both sets of customers.

The combination of reduced revenue caused by customer solar installations and other new business models and increasing expenditures to ensure reliability is risky business for utilities.

“The changing use of the grid can risk the ability of utilities, under traditional regulation, to afford a prudent level of grid upkeep and expansion. If utilities are forced to cut back grid upkeep, for want of sufficient monies, there’s no one standing behind the utilities to step into the breach,” the report said.

Several rate-making options exist to prevent a revenue shortfall by altering the traditional utility rate structure, the study points out. For example, utilities could change the mix of variable and fixed charges in electricity bills. All end-users could be required to pay the same rate for electricity and the price utilities pay for the power it receives from third-parties would be based actual cost savings to the utility. Another way to better reflect true costs is to change the mix of long-term and short-term charges in electric bills. Under the existing regulatory regime, utility costs for grid upkeep are long-term while electricity bills are short-term.


For more:
– see the report

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