The Solar Electric Power Association’s (SEPA) annual Utility Solar Conference (USC) is the premier utility solar conference in the United States, and the in-depth discussions between utility and industry leaders can be counted on to portend where solar is heading. At this year’s event, held in San Diego, two topics stood out:
- Utilities should “get electric rates right” to stimulate demand when supply is abundant to “fill the belly of the duck.”
- Utilities should stop worrying about rooftop solar and focus on the vast opportunities they now have to grow revenue.
Both of these topics signal an important turning point from the past few years towards finding innovative solutions to address the changing energy landscape. This post is focused on filling the belly of the duck; we’ll cover utility opportunities in a future article.
Focus on rates
Electric rates were front and center in USC’s opening general session moderated by Julia Hamm, president and CEO of SEPA, and featuring Jim Avery, SVP Power Supply of San Diego Gas and Electric, Jim Rogers, former CEO of Duke Energy, and Mike Champley, commissioner of the Hawaii Public Utilities Commission. This group represents the vanguard of solar utilities and regulators coming from California and Hawaii, the two states facing the highest level of solar penetration.
The utilities, ISOs and regulators in California and Hawaii are facing new challenges from changing electricity consumption and generation patterns. These problems are often characterized by the duck curve, as seen in Figure 1. The duck curve, introduced by the California ISO (CAISO), shows the net electric demand that must be met by baseload, load following and peaking resources after you remove must-run renewables, including solar (distributed and utility scale), wind, small hydro and geothermal.
In California and Hawaii, the net load curve is steadily sagging at mid-day. Figure 2 shows a net load example from the CAISO on May 20, 2015. Remarkably, on this day, the mid-day net load was nearly as low as the overnight minimum net load, primarily driven by solar generation at mid-day. From the mid-day low, the net load then rapidly ramped-up by 9 GW between 4:00 and 9:00 p.m., before steadily declining. In this scenario, electricity consumed during the morning and evening peaks is costly for utilities, as utilities are forced to run expensive flexible resources whose capital costs can be amortized over fewer hours per year.
Paradoxically, most California customers did not receive any price signals that would be designed to rectify this situation. This induces both the wrong pattern of consumption and distributed solar production.
Understanding the impact of rates
It is poor rate design, not solar, that sends inefficient price signals to the market, and thus is the source of the problem. The vast majority of U.S. electricity users are on flat rate schedules, and have been for the past century. The result is that utility customers that use electricity mostly during off-peak have been subsidizing customers that use electricity mostly during on-peak.
This problem is exacerbated by net metering, which transmits inefficient price signals to the distributed solar markets. It is an open debate about whether or not net metering over- or under-compensates distributed solar as a whole, but it unquestionably sends inefficient price signals to potential distributed solar customers. Fundamentally, this isn’t a problem with net metering, it’s a problem of flawed rate design.
Enter our USC speakers who agreed that utilities and regulators must “get rates right” and send the right price signals both to consumers and self-generators. Variable rates reflect changes in supply and demand for electricity throughout the day, and throughout the year. In addition to variability, rates should also reflect that certain costs are fixed and not dependent on how much you use the grid.
Getting rates right
What happens if you get rates right? Everyone has an incentive to fill the belly of the duck. Consumers will shift usage where they can to capture off-peak pricing—running appliances during the day, late at night or on the weekend. Distributed solar customers will face their panels west to capture the maximum return from their investment by producing electricity when it is most needed (see pages 10-11 of this Solar Today article). Finally, consumers will adopt technology to take advantage of electricity when it is least expensive. Electric cars and heat pump water heaters are two examples of devices that allow fuel switching.
Electric vehicles allow consumers to switch from gasoline to electricity, and heat pump water heaters allow utilities to switch from natural gas (predominantly) to electricity. These loads are also very flexible. Each typically needs to draw electricity from the grid for only a few hours a day, and that timing can be set to when supply and demand dictate the lowest rates. In California, that would typically be late at night and from 10 a.m. to 2 p.m. during the day. Send the right price signals and it is amazing how customers and generators will respond.
The SEPA Utility Solar Conference was a celebration of opportunity this year. There was little talk of death spirals and lots of discussion about “filling the belly of the duck,” community solar and other opportunities for utilities to grow revenue. The utility model is not dying, it is only changing. Electric utilities have the opportunity to be a critical part of a lower carbon energy future while simultaneously growing revenues (more on that in a future blog post). Getting rates right is a critical part of the evolution.
This article was shared via RSS by the awesome folks at Clean Power Research read more about <a href="http://www.cleanpower.com/2015/get-electric-rates-right/"Lessons from SEPA’s Utility Solar Conference Part 1: Get electric rates right to fill the belly of the duck or go back home