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Who Pays for Solar Power?

01/03/13

  12:01:00 pm, by Jim Jenal - Founder & CEO   , 439 words  
Categories: All About Solar Power, Solar Economics, Solar News, SCE, SDG&E

Who Pays for Solar Power?

We wrote before about an upcoming study from the California Public Utilities Commission (CPUC) to determine the overall cost-benefit of installing solar.  Well in advance of that study, the investor-owned utilities (IOUs) in California are coming out swinging, with populist rhetoric about solar’s unfair impact.  But just because a utility says something, doesn’t make it true!  Here’s a quick take.

solar potentialIn the closing weeks of 2012 several news stories appeared, making the case for the IOU’s POV regarding solar.  (This one from the San Francisco Chronicle is typical: Solar Power Adds to Nonusers’ Costs.)

Their theory is that because solar system owners pay according to Net Metering - whereby excess energy produced during the day is used to offset (or net out) energy usage at night or during stormy days - they are not paying their fare share of other fixed costs of the utility such as for distribution and transmission facilities.

It is certainly true that solar customers pay less for distribution and transmission systems because those costs are tied to a customer’s total usage and is not simply part of the fixed “customer charge” that all residential utility customers pay - including solar customers.  But customers did not decide the nature of the utility’s rate structure, and presumably the IOUs were happy to charge more to cover “fixed costs” based on usage.  If that is the case, then it is equally fair to receive less from a customer with a lower monthly usage.

Moreover, the “analysis” being advanced by the IOUs ignores the benefit of that net energy being provided by solar customers - since that energy largely peaks alongside the utility’s peak demand, it offsets peak production energy costs for the utility.  Such “peaker” plants provide the most expensive energy a utility produces, so reducing that demand is actually a significant benefit to the utility.

At least one countervailing analysis asserts that solar customers are providing a net benefit: Solar Power Generation in the US: Too expensive, or a bargain? That study looked at all components of solar system benefits - including impacts on transmission and distribution - and concluded that solar power customers are actually subsidizing other users, even with solar deployment as high as 30% (the current net metering cap is just 5% and California is still a long way from reaching that goal).

Make no mistake, the IOUs are coming after net metering because it is beginning to affect their bottom line - and they can predict that as costs for solar continue to fall, that enormous potential for solar energy will hurt their business model.  The solar industry is in for a fight - and it will be a fight of existential proportions.

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Comment from: matt [Member]  
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mattJim, Great insight as always. One question that keeps coming to mind: it seems to me that it would be fair to require net metering customers to pay transmission and distribution costs since the solar customer can only sell power back to the utility if there are lines in place to transmit the power. Maybe the solar customer could waive any renewable or energy efficiency riders on the bill, but to me, the lines are very necessary for solar customers to sell back the power. Shouldn’t we pay for this?
01/03/13 @ 20:21
Comment from: Jim Jenal - Founder & CEO [Member]  
Hi Matt - You are certainly correct that the grid infrastructure is a necessary element for a net-metering arrangement to work. But the solar customer who isn’t zeroed out (i.e., doesn’t net for the year to zero usage - which is the vast majority of solar customers) *is* paying for that infrastructure at the exact same rate as any other utility customer - they just pay less because they use less. If it is rational to charge more to a high usage customer for a fixed asset like transmission and distribution - and the utilities appear to be fine with that - it is hard to see the *fairness* in their complaint that someone who uses less - whether due to efficiency or renewables - should pay less. Beyond that, the solar customer actually lowers the demand on those fixed assets. Less energy must be procured by way of remote transmission, and the redistribution of excess energy lowers the overall load on the local distribution network. As the study linked to in my post concludes, solar customers are actually providing a significant benefit to both rate payers and tax payers. It will be interesting - to say the least - to see what the CPUC study concludes. But this PR push from the IOUs is clearly their opening salvo in a fight to put the solar genie back in a bottle. I’m not going there! Jim
01/03/13 @ 23:43
Comment from: chriswvv [Member]  
chriswvvTransmission and distribution(t&D) are for the most part fixed expenses. To follow the logic of requiring additional fees for net-metered solar the IOU’s should then charge low consumption users more per kWh for the energy they use. The less use, the more per kWh the T&D cost.
01/04/13 @ 10:02
Comment from: Jim Jenal - Founder & CEO [Member]  
Chris - Exactly! My guess is that if they could get it past the CPUC, the IOUs would do exactly that! They seem to think that if they couch this in terms of fairness, they will have more traction attacking “rich” solar owners. It is an extraordinarily cynical ploy but one that could succeed if we aren’t prepared to fight back. Jim
01/04/13 @ 11:20
Comment from: matt [Member]  
mattHi Jim, Good points. I am still struggling with the second paragraph in terms of lowered demand. Yes, this is likely reduced on remote transmission lines, but redistribution of locally produced power still requires local distribution lines. What am I missing?
01/07/13 @ 06:32
Comment from: Jim Jenal - Founder & CEO [Member]  
Hey Matt – Solar customers still need local distribution lines and they pay proportionately for those lines like everyone else. But they do reduce at least some of the load on the local distribution system when they produce excess energy. The typical distribution connects to a pole-mounted transformer and then multiple end-users down string from the transformer. In the absence of solar, every load pulls power through the transformer. In hot temperatures, when A/C loads spike, that puts much more stress on that transformer, resulting in premature aging and in some cases, failure. Now add a solar power system - first, it is not drawing power at all from the transformer and second, its excess energy being fed to the distribution line reduces the amount of power that needs to come through the transformer to power the other loads. As the solar system’s peak power coincides with peak temperatures, it can help reduce the load on that transformer during the most demanding period, thus providing a net benefit to the utility. Jim
01/07/13 @ 07:00
Comment from: matt [Member]  
mattI see what your saying. But I still think the power flows back through the transformer to get to the distribution line. It isn’t uncommon to have one transformer per house. I’m not saying there is no benefit to the utility - the relationship is mutually beneficial. I’m just not sure what the value of the benefit is in relation to the capacity benefit provided by the utility (e.g. load requirements when PV system does not meet customer load or all power requirements when panels are not generating at night).
01/07/13 @ 12:27
Comment from: Jim Jenal - Founder & CEO [Member]  
Matt - One transformer per house? Not anywhere where I have installed. Remember we are talking about incremental cost-benefit. The utility already had to string the distribution grid - that is part of their monopoly. Solar systems aren’t stressing the lines - line replacement is a function of storms, not usage. Only the transformers are affected by loads. Solar systems are providing significantly more benefit than cost. Jim
01/07/13 @ 18:19
Jim Jenal is the Founder & CEO of Run on Sun, Pasadena's premier installer and integrator of top-of-the-line solar power installations.
In addition, Run on Sun offers solar consulting services, working with consumers, utilities and municipalities to help them make solar power affordable and reliable.

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