A response to the letter to the editor by Ashley Brown in our February 2016 issue.
Dr. Charles Cicchetti is a member of Pacific Economics Group, Inc. and the former Miller Chair of Government, Business and the Economy at the University of Southern California.
Editor's Note: Cicchetti's article, "Solar Battle Lines," authored with Jon Wellinghoff, was published in our December 2015 issue. It defended Net Metering based on retail rates for the sale of surplus rooftop solar generation.
The article drew a response from Ashley Brown in a letter to the editor published in our February 2016 issue. Brown argued that utility-scale solar is significantly more efficient (in cost and carbon reduction), rooftop solar imposes additional grid integration costs, and paying retail rates for Net Metering overvalues the societal benefits.
One might reasonably expect this debate shall continue on these pages. We welcome your opinion about the following response by Cicchetti. Send your view to mitnick@fortnightly.com.
Among the important questions, is rooftop solar more like an independent power producer, subject to societal regulation and policy, such as wholesale-level regulation or retail-level resource planning? Or is the electricity that is produced a private consumer good, immune from regulation, policy, and planning?
Utilities are waging campaigns in a growing number of states regarding rooftop solar. They aim to turn customers into utility serfs - to convince regulators to assert that all the electricity generated within their utility franchise territory comes under their control.
Increasingly, utilities are trying to convince regulators to revise their tariffs, significantly. Their goal is to reduce the prices paid for any excess electricity that rooftop solar customers provide to the utility grid. Like energy efficiency, utilities are concerned with lost sales when retail customers choose to install distributed generation on their premises. Regulators should not favor or penalize either customer choice, particularly given the broader societal benefits both achieve.
Mr. Brown and his supporters call the current practice an unjust subsidy. But Brown chooses to ignore facts, particularly related to who is paying what. And he supports the utility chorus that loudly chants the need for tariff reforms.
Yet these "reforms" would force retail customers, who finance the installation of renewable energy on their homes, to pay significantly more; and often in a discriminatory manner.
If a customer spends her money to install solar panels on her premises, she is the one paying to help achieve statewide renewable energy standards. She is the one paying to reduce dependence on greenhouse gases and otherwise expand societal benefits, and to reduce net utility costs.
Brown omits a most important aspect of all this. Suppose a customer installs rooftop solar. She produces 1,000 kWh each month, uses 900 kWh, and sells her excess production - 100 kWh, just 10 percent.
Any alleged overpayment applies to what amounts to a small 10 percent fraction of her distributed generation output. However, the cost savings and benefits to society will apply to the entire 1,000 kWh of electricity that she produces each month; electricity that she directly finances.
Do the math. Any "excess" payment for 10 percent would never be greater than the value to society and the utility for the savings and benefits based on the entire 100 percent of electricity the customer produces.
The customer in our example pays for her rooftop installation. But when utilities build, own, and operate or purchase renewable generation, they pass the costs on to other utility customers, who pay for the entire amount the utility produces or purchases.
Even if one were to accept Brown's false claim that Net Metering results in excess payments for about 10 percent of what the customer generates in excess of her needs, this would not erase the more dominant fact. The utility pays nothing for the distributed energy resources its customers install on their premises.
Brown asserts, "large-scale solar costs approximately half as much as residential installations per unit of clean power produced." But, he does not discuss how utilities pass on the costs of large-scale solar to their customers and, importantly, does not mention that utilities (and their non-participating customers) pay nothing when customers pay for the rooftop solar installation on their homes.
When a residential customer invests in rooftop solar, neither the utility nor any other non-solar customer pays a dime. But when the utility installs utility-scale solar, that cost is put into the utility's rate base, where the utility collects three dollars in undiscounted profit and depreciation over the life of the unit for every one dollar it spends for utility-scale solar.
Customers that produce excess kWh from their distributed energy resources can do three things with the relatively small amount of electricity they produce in excess of their immediate energy requirements. These are:
Store the electricity in domestic batteries, including any electric vehicles they may also own;
Park the electricity with the utility, which has the ability to use such kWh immediately to serve other customers or store the kWh in utility-owned batteries; or
"Sell" the excess electricity to other customers using the utility grid.
Under the current approach for Net Metering, the utility effectively is swapping future kWh with the customers that export the electricity to the grid. Storage technology improvements and lower costs open other options, which should be considered when utilities seek to revise Net Metering tariffs.
If the value of excess electricity that customers generate on their rooftop solar systems were reduced, some customers will choose to spend money to store their excess kWh. In this manner, solar customers would void any assertion that the utility controls distributed generation any more than they control energy efficiency or the manner in which customers respond to time-of-use tariffs.
For reasonable terms, customer storage could be available for utility dispatch. If this were done, it would be similar to customers that are permitted to choose utility storage and "park" the excess energy on the electric grid, much like FERC permits natural gas shippers to do on pipelines.
Regulators should also recognize that society and other utility customers benefit from 100 percent of the rooftop solar generated, while any Net Metering payments and administrative/handling fees are applicable to the small percent of excess electricity that makes the meter run backwards when customers produce more than their corresponding real time load.
Brown sets up a straw man when he states the obvious - that customers who bank or park electrons will not withdraw the same electrons. That is nothing more than saying people who bank cash do not withdraw the same currency, or natural gas shippers that park molecules do not withdraw the same physical gaseous energy.
Brown goes to lengths to debunk facts no one disputes and, more importantly, do not matter. No one, either in the industry or at the FERC, uses the term "park" in the way Brown twists it.
Banking or parking is simply a matter of displacement. Electrons are injected at one point in time and location and other electrons are withdrawn later in time.
It is also important to understand what happens to the excess kWh Net Metering makes available for the utility to "sell" to other retail customers. A neighbor who receives the excess generation produced by the roof top solar customer would pay to the utility a full retail price and, initially, the utility pays nothing for this electricity.
At some point in the future, the customer who supplied the excess electricity to her neighbor may purchase electricity of a similar value from the utility, which the utility provides. She pays for this electricity using a credit based on the amount she banked with the utility. Effectively, the utility sells one kWh and receives full retail revenue for that one kWh.
In effect, the rooftop solar customer uses all the electricity that she produces. In this scenario, there would be two deliveries and double grid use.
Most utility tariffs charge fixed monthly service fees to cover distribution costs for all customers connected to the grid. In this case, utilities claim that the customer service fees they typically charge are not sufficient to cover the use of the grid by rooftop solar customers.
These claims need to be examined in some detail. Offsetting a claim of cost recovery deficiency are the myriad societal and utility benefits and cost savings for the entire output of kWh that rooftop solar produces.
Furthermore, it should be recognized that these same rooftop solar customers, who pay the same customer service fees, are using the grid much less. They supply most of their own requirements.
The path ahead that I recommend calls for state regulators or legislatures to define rooftop solar as energy that customers own - not as a product utilities control and operate. Distributed energy generation, like energy efficiency and conservation, should not come under utility monopoly control. Customers spend time and money to reduce the amount of electricity that they purchase from utilities. There is no duty for a customer to buy electricity from the utility. Regulators universally recognize that there should be a hard stop preventing monopoly power at the utility meter.
Regulators should give short shrift to most utility arguments, which are simply anti-competitive pleas to protect revenue requirements. Electric utility companies should invest to toughen up their grids and to add storage that they can dispatch. And, utilities should stop fighting customers who choose a new technology. If not, utilities could be accelerating their downward spiral, particularly when distributed generation and customer-owned storage merge into even greater utility bypass.
Your strong opinions are most welcome. Send them to mitnick@fortnightly.com. We'll publish the best. Letters typically range from 200 - 700 words but can be lengthier.
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