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from http://www.altenergystocks.com/, see below: 

Dr. Stephen R. Humphrey, Director of Academic Programs, 
School of Natural Resources and Environment, 
Box 116455, 103 Black Hall, University of Florida 
Gainesville, FL  32611-6455  USA 
Tel. 352-392-9230, Fax 352-392-9748 
http://snre.ufl.edu <http://snre.ufl.edu/>  


September 09, 2007


The Grid Impacts of Net Metering


Net metering describes the requirement that an electric utility buy
electricity from any of its customers that generate their own
electricity (usually with some sort of renewable energy, such as solar
or wind) at the same price that they sell it to the customer.  That
seems fair, doesn't it?

The Utility Perspective

It doesn't seem fair to the utility.  Utilities do more than just
generate and sell electricity to customers.  They also are responsible
for transmission (delivering the electricity) and reliability (making
sure that the lights work when you flip the switch.)

Taking just the reliability requirement, suppose that a homeowner, call
him Sol, wants to install a solar photovoltaic (PV) system on his roof
and sell the electricity back to the grid when he was not using it
himself.  But suppose Sol had a reliability requirement.  For instance,
suppose that whenever Ted, one of his neighbors,  turned on the TV, Sol
had to make sure the PV system was working, or the TV would not turn on.
Also suppose Ted knows where Sol lives, and that Ted likes to watch TV
at night. 

Ted would probably grow quite unhappy with Sol quite rapidly, and would
definitely complain, and might even start pay Sol an unfriendly visit at
uncomfortable hours.  Sol would probably think twice about signing up
for net metering under those rules.  

Utilities aren't enthusiastic about net metering, either.

The Benefits of Grid-Tied Solar

The example above is something of a straw man.  Unlike Sol in my
example, with net metering, utilities are not being asked to do
something which they are incapable of doing.  In fact, utilities balance
load and demand all the time, and so long as net metered systems only
account for a small fraction of a utility's total demand, they are un
likely to be a strain on the grid.

In fact, because PV panels usually produce power on hot, sunny
afternoons when peak load is driven by air conditioning, solar homes
often provide a net benefit to the grid
<http://www.solar2006.org/presentations/tech_sessions/t11-m076.pdf>
[.pdf] for which the customers are not paid, because most utility
customers are charged a flat rate per kWh, which does not take into
account the higher value of electricity at times of peak demand.

  <http://www.solar2006.org/presentations/tech_sessions/t11-m076.pdf> 	
Peak reduction from near Zero Energy Homes with West-facing PV (blue)
for Sacramento Municipal Utility District. Slide 19
<http://www.solar2006.org/presentations/tech_sessions/t11-m076.pdf> 	

The ideal orientation for PV depends on the utility's load profile.
West-facing PV will be better for some, while south facing will be
better for others.  

What about Small Wind?

Not all distributed generation is south- or west-facing PV, however, and
other forms of generation such as small wind often produce power at
times unrelated to peak.  If the distributed generation customer is
charged a flat rate for electricity, the costs of servicing the customer
may come to exceed what he pays for service.  This is especially likely
for a customer with a small wind turbine which may produce very little
of its power at high priced peak load times, and a lot at times of low
load.  This requires the utility to transmit the power a long distance
to where it may be needed, as well as run its least expensive generation
at less than full capacity in order to accommodate the extra power
generated by distributed wind.  

Many environmentalists will read "least expensive generation" in the
line above and think "that's exactly what we want... least expensive
generation means coal plants, and it would be wonderful if a utility had
to shut those down."  

While coal is the least expensive form of generation for most utilities
today, but it may not be for long, and not only because of the cost of
pricing un carbon emissions.  In terms of marginal cost of generation
(the cost of producing an extra kWh of power) wind is already cheaper
than coal because there is no fuel cost.  I no longer recall where I
heard this anecdote, but I believe that last winter (2005-6), on an
extremely windy weekend in Europe, electricity was trading for free on
the wholesale market, and many utilities were shutting their coal plants
down.  North America still lags Europe in terms of wind penetration, yet
utilities in windy areas are likely to get to high wind penetrations
first, and these are precisely the areas to which small wind is also
most suited.  In the not so distant future, I can easily see a scenario
where a rural utility with a high degree of wind generation of its own
might have to shut down some of its wind turbines in the middle of a
windy night because of net-metered small wind, forcing the utility to
pay retail rates for electricity it would otherwise have gotten for
free, and then having to pay to transmit that power somewhere it might
actually be used.

The Bigger Picture

This is not to say that small wind is bad and west-facing PV is good,
just that each impose different costs or benefits on the system as a
whole.  Wind can also be good for a system.  In February of 2006, an
unseasonable cold snap caused power outages in Denver in part due to
unexpectedly large demand for natural gas for heating
<http://denver.bizjournals.com/denver/stories/2006/03/13/daily12.html> .
Cold winter nights also happen to be when the wind blows hardest and
most consistently on the northeastern Colorado plains, so a small wind
turbine on net metering would have actually helped to reduce the
severity of the controlled rolling blackouts Xcel ordered.  If the 400
MW Peetz wind farm
<http://www.journal-advocate.com/articles/2007/08/21/news/local_news/loc
al1.txt>  (now in phase II of construction) had been operational in
February 2006, I think it is unlikely that the blackout would have
happened at all.

   	
Graph from Trans-Elect, LLC using data from NREL Wind Performance
Projections.  Note that the capacity factor for Peetz in NE Colorado is
over 60% in the month of February, when the blackouts occurred, and
capacity factor is also highest at night.  The other lines are wind
regimes from SE Wyoming and Lamar in SE Colorado.	

Having Customers Pay for Costs and Benefits

Net metering is an implicit subsidy for distributed generation, because
the net metered customer gains the benefits of the utility's grid
(reliability and transmission of electricity) without having to pay for
it.  In addition, some forms of net metered generation are given greater
benefits than others when electricity is metered at a flat rate.  If the
price of electricity varied depending upon the load on the system (Time
of Use pricing <http://library.findlaw.com/2003/Mar/6/132618.html> ),
then properly oriented PV would often be paid more than it under a flat
rate system, and people would be encouraged to orient their solar panels
for maximum system benefit, rather than maximum electrical output.   

As for the implicit subsidy of unpaid-for transmission, I believe it
should be abolished, and replaced by an explicit subsidy large enough to
reflect the social benefits of distributed generation
<http://econpapers.repec.org/paper/camcamdae/0336.htm>  other than
increased grid stability, which is accounted for with time of use
pricing.  

California Solar Initiative: A Note of Caution

When California mandated that solar customers had to sign up for time of
use metering in order to earn solar rebates, solar installers felt that
they were not given enough support
<http://www.renewableenergyaccess.com/rea/news/podcast?id=46763>  to
understand the new rules (which included a lot more than the switch to
TOU.)  Non-specialist customer confusion was understandably greater, and
TOU pricing became the focus of a minority of solar customers who were
actually charged more than they would have been under flat rates (
because their solar system too small to offset enough of their
air-conditioning driven usage during the peak period
<http://www.solarbuzz.com/news/NewsNAGO328.htm> ).  The California
Public Utilities Commission (CPUC) removed the TOU pricing requirement
because of the outcry.

The fact that the CPUC backed down is a tragedy.  In a very real sense,
the solar customers who were hurt by the switch to the TOU tariff were
the ones who had been receiving an unfair subsidy in the flat-rate
system: they used a disproportionate amount of power during peak times,
so much so that the benefits of solar systems were too small to replace
the lost implicit subsidy.  Customers who suddenly had to pay something
closer to the true cost of their electricity usage found that they were
paying more than they had been, despite their new solar panels.  They
unsurprisingly clamored to get back onto the flat rate where they were
able to take advantage of the market inefficiencies which subsidize
their air-conditioning chilled lifestyles.

Such homeowners would do a lot more for the environment if, instead of
splashing out money on a PV system, they had made their homes tighter
and switched to more efficient air conditioning.  For instance, the
hyper-efficient Coolerado Cooler <http://www.coolerado.com/>  (The
commercial version of which is sold as the Delphi HMX
<http://delphi.com/manufacturers/other/heatcool/exchanger/> ) works best
in the hot, dry climates which were worst hurt by the time of use rates.
As I have said many times, PV holds an unhealthy fascination for people
<http://www.altenergystocks.com/archives/2007/08/why_energy_efficiency_i
s_a_hard_sell_2.html> , to the point that money which would do far more
good spend on energy efficiency improvements is effectively wasted on
solar.  If we are truly more interested in solving the world's climate
problems, we will spend limited government rebate money subsidizing
energy efficiency improvements with large net benefit for the grid that
also reduce carbon emissions, rather than subsidizing expensive solar
systems for a fraction of the benefit.

Conclusions

Net metering is definitely advancing.  On August 21, I attended a
Colorado Public Utilities Commission (PUC) hearing on distributed
generation, and it seemed clear to me that some form of statewide net
metering would likely become law in the Colorado in the next legislative
session.  See my notes
<http://www.altenergystocks.com/%3ca%20href=%22http:/www.altenergystocks
.com/archives/going_beyond_net_metering.htm%22%3eDownload%20file%3c/a%3e
>  from that meeting for more detail.  I did bring up the possibility of
combining net metering with TOU pricing in the meeting.  However, that
and other good ideas from participants (including inverted tiered block
pricing <http://www.epa.gov/cleanenergy/pdf/eeap_rates.pdf> ) or using
solar rebates to subsidized increased energy efficiency will probably
require considerably more advocacy if they are to make it into law.  

On the bright side, the Colorado Governor's Energy Office did suggest
that the PUC investigate west-facing PV as part of a net metering
program.  They are likely to be listened to, although inclusion in the
final package from the state legislature is chancier. 

The California experience shows that the complexity of such schemes
means that care will have to be taken with design, and educational
outreach is important.  If the California consumers were helped with
efficiency improvements before they installed solar, there would likely
have been much less of a backlash, and the efficiency improvements would
have done a lot more good than the solar PV systems which would have
served as the carrot to induce the efficiency improvements.

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<http://www.altenergystocks.com/disclosures.html> .

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