A second reason net-metering is close to fair is because mid-day units of electricity are more valuable. Solar production peaks midday while household usage is U-shaped, so most production flows out to the grid during the high-price periods. Rates average peak and off-peak pricing so rate customers typically don't see that.
In other words, solar production produces high-value kWhs the utility can sell to my neighbor for retail, even though they don't have to generate or deliver it themselves.
- The wholesale price is the cost of generating electricity. The retail price includes the cost of serving the customer, i.e. billing. Sure, there are less transmission costs, but in New Zealand they only play about 20% of the retail cost.
- Also, just because midday rates of electricity are high, those high rates tend to subsidise the cost of running the network when rates are low (i.e. other times). Power Stations don't come for free. People want security of supply, but then to be able to poach from the most profitable parts of the day?
IMO this is about aggregate demand and the stranded cost thing is a red-herring.
And I'm not saying that those costs should be massive, I'm just saying those costs exist. Someone must pay for them. Considering I've observed that the margin on retail electricity customers is not much (like $2K of customer lifetime value over 10 years), it's not like in New Zealand electricity companies are rolling around in cash from profit per customer, it's really just a volume game (the company I worked for had 430,000 retail customers).
BTW, the value chain in energy from generation to transmission to meter to cash is full of lots of participants. In New Zealand, the generator, wholesaler, retailer, national distributor, and local distributor are all separate entities. To say "Utilities ... are overestimating their stranded costs to the extent that they don't count the increase in the efficiency of their ability to serve load" ignores the reality of this value chain. At best, this really only benefits the local distributor.
As for the value chain you are right that I am simplifying but we are on an internet comment board not writing a white paper. However, the simplification doesn't matter. Whether it is vertically integrated utilities or deregulated and unbundled electricity service, the point still stands that stranded costs are overestimated to the extent that they don't account for the fact the netmetered kWhs tend to be high value, are resold at retail, and do not have to be purchased or delivered by the seller. Adding more middleman or more costs just adds accounting wrinkles (and which I think are inappropriate for the forum).
If your point is that the harm is caused by a reduction in aggregate demand then that is a completely different argument.
Asking for sources for a rebuttal to your opinion is a bit underhanded given that you provided none to backup your claim.
And no, your comment isn't more than an opinion because you've worked in the industry. An informed opinion sure but asking for someone to provide sources to their argument would be a bit hypocritical unless you are going to step up as well.
So the topic of debate is whether its fair to charge a retail price for solar buybacks, or a wholesale price. I argued that a retail price is unfair, because energy utilities have a bunch of retail costs, of which billing is one of. The counter argument is that billing is a minute component of the retail cost. You've suggested that I have an informed opinion, but need sources to back up my argument.
Contact Energy have a management paper that discusses energy costs. A definition of Netback from Contact Energy (2015) is:
Netback is calculated by deducting the network, meter, levy and cost to serve costs from customer tariffs. This enables the performance of the retail channels to be measured without using an energy cost. The netback is meant to cover, inter alia, the cost of energy, capital return, risk margin and a retail margin.
Cost of Energy was $994M, while Cost of Transmission and Metering was $621M, and Cost to Serve (such as billing) was $118M for Contact Energy for the year ending 30 June 2015 (Contact Energy, 2015). The remainder, as EBITDAF was $484M.
As you can see, $118M for Cost to Serve is 11.8% of the Cost of Energy. This doesn't change with solar buybacks. The cost of energy is from a different source (your personal solar panels), but there's still costs of transmission and metering, cost to serve, and depending on the utility you connect to, some sort of EBITDAF (unless they're a not for profit). So that's $0 (your solar panels) + $621M (transmission/metering) + $118M (retail/billing) + $484M (earnings before income, tax, depreciation, amortisation, and changes in fair value of financial instruments).
Do check out McNicol (2013) for an interesting article on this.
tl;dr - Electricity networks are expensive, and the cost of energy is about half the total costs of running the system. Who pays for that, if the utility has to pay the retail rate to you because you're using solar panels?
References: Contact Energy. (2015). Management discussion of financial results for the year ended 30 June 2015. Retrieved 9 February 2016 from https://www.contact.co.nz/cenergymedia/contactenergy/files/p...
McNicol, H. (2013). Are solar energy systems worth the cost? Retrieved 9 February 2016 from http://www.stuff.co.nz/the-press/business/the-rebuild/932970...
In a 1-1 net metering scheme, I generate 1 kWh in the distribution grid, it goes to my neighbor, the utility bills my neighbor 10, and credits me 1 kWh. When I draw that 1 kWh, the utility loses 2 cents on average. But they also saved 8 cents by selling my kWh to the neighbor. The summing works like this:
10 from my neighbor to the utility 0 from me to the utility -10 for the utility to provide me that kWh 8 to the utility for avoiding the cost of generating and distributing the 1 kWh that went from my system to the neighbor.
The net to the utility is 8 cents. Ouch. But we are talking about the average kWh. It might cost the utility 3 cents to buy an off-peak kWh and 8 cents to buy an on-peak. If that is the case, they are already losing 2 cents for every on-peak kWh they are selling me but making up for it with off-peak (I am likely to use more off-peak anyhow).
In this case, netting might look like the following:
10 from my neighbor to the utility 0 from me to the utility -8 for the utility to provide me an off-peak kWh 11 to the utility for avoiding the cost of generating and distributing the 1 kWh that went from my system to the neighbor.
The net to the utility in this case is 13 cents.
13 cents is better than 8 cents but it is worse than the 20 cents they would have made if I just consumed without generating.
Whether you credit at wholesale or do a .75-1 netmetering or whatever depends on evaluating the stranded costs and whether they are reasonable. Insofar as you look at average kWh prices and not the value of actual production from solar, you inevitably overstate the stranded costs.
Nevada specifically seems a bit messed up right now. Politics will have to duke it out... I am not actually on the Solar side of things.
Prices should be quoted appropriately. Frankly, grid operators should be market makers, continuously quoting bids and asks they'd be happy to buy and sell power at. If the mid-day rate subsidizes the evening, maybe the latter needs to be higher.
This is how Nest makes money. They serve as demand response. You sign up to get a credit on your electric bill, and when demand is extremely high, a utility can signal to Nest to reduce demand for 15 minute increments; its cheaper than firing up a peaking natural gas plant.
Your entire premise assumes that there is an immediate, local, retail consumer who will buy all of your production the instant you produce it. Under the net-metering model, the utility has to pay you retail for the power even if it is surplus and unsellable.
The fact that people are at work doesn't imply a drop in usage - they just start consuming electricity at the office, retail location, etc.
> Solar production peaks midday
should have been
> Solar consumption peaks midday
?
Its going to be untenable to tax someone for no longer using the electric utility (I'm revolted by that idea personally, and am pretty far left bleeding liberal).
You could possibly further subsidize low income electric consumers to have their own system installed using the federal general fund (solar installations receive a 30% tax credit; it might be possible to increase that credit to 50%-75% depending on your adjusted gross income, and have it be a rebate immediately applied at the time of system install).
Which is amusing, because you already pay the tax in the form of variable rate usage pricing that is higher than it needs to be. This is the problem with making hidden subsidies explicit -- people suddenly don't like the subsidy anymore.
So they are trying to stem the tide of the rich leaving by making them continue to bear the cost of subsidizing the poor.
Instead of playing games with those on solar, they should just straight up call it what it is so it is more explicit.
No, they're trying to prevent competition. They run power plants too, and they'd rather you bought electricity from them rather than sold it to them.
That's why none of the power companies are advocating just removing the implicit environmental subsidy and allowing power to be sold back to them at wholesale rate.
They just want solar panels gone, period.
How is that worse than any other tax? You make a choice and the government charges you for making that choice.
It's only with Smart Meters that the utilities can accurately measure per-house production and consumption separately. It's certainly possible to create new billing plans that take advantage of the Smart Meters, but with the capital nature of solar investments, there's a lot of legacy installs to deal with, and those people get angry when they deal they signed up for is changed without grandfathering them into the old way.
If you just wanted to account for peak pricing, you could just create a wholesale solar price that estimated average wholesale price for solar in a given area. You could get pretty damn close without having install smart meters.
It always amuses me when people complain that we're not being "fair" to monopolies.
The whole set up isn't fair. There's no market discipline on the transmission side, so there's no point in transmission being privatized at all.
It's clearly not politically feasible (yet) to push for nationalization but there's no reason to indulge their whinging either.
Also yes with power distribution you have long tail network effects that make charging for service using pure market mechanisms essentially impossible. Hint, when the US stopped subsidizing rail by things like land grants and turning a blind eye to graft, they all went bankrupt.
Perhaps this is the problem, both at ownership and billing level. Why does the utility get to own the power lines instead of the citizens (via local governments and municipalities)? How do you know if utility's claim of the cost of transmission is correct, when they still manage to pay out bonuses to themselves and produce dividends for shareholders? As a consumer you're supposed to blindly trust their statements on costs.
- They aren't transmitting it, which has a cost. They aren't providing value add like the power company.
- They could pay wholesale if they figured out a way to get the electricity from the power plant to their house, which is the value add that the power company provides.
- They have a choice in how much they buy, by turning things on and off. The power company, being a regulated utility, does not have that choice. They must buy as much as is demanded.
Magic faeries don't hand out rights-of-way, substations, 150kv switchyards, transformers, capacitors, conductors, pole provisioning, pylons, transfer switches, and the maintenance of all of the above for free.
Net metering is stealing from those who provide the distribution infrastructure, full stop.
I buy my car from company A and my gasoline from company B with clear prices for A and B.
Why is the scenario where the car company provides my gasoline and then bills for both gasoline and the car in an opaque "single bill" manner, where I can never make out which is which preferable for the consumer?
Net metering is a subsidy for upper middle class folks who own their houses and want solar panels because it's hip and cool.
The costs get directly passed onto the other consumers. The poor and middle class.
People who own solar panels become producers under net-metering. They are just like any other firm in the market. The prices are wonky because they are regulated by law instead of free competition, but the prices of all utilities are wonky because they are regulated by law instead of free competition.
This, however, is a myth (reinforced at every turn by the incumbent monopolies). Rooftop solar tends to overproduce on the hottest days, which also happens to be the time when the grid is overloaded by air conditioners running at full throttle. In effect, rooftop solar is at maximum production exactly when the grid needs it the most, thus providing very valuable load smoothing. This greatly benefits utilities, since they don’t have to spend as much on peak-generation capacity.
There is ample evidence that utilities underpay for these benefits [1], while their profits rapidly increase. Three major Nevada casino operators “have expressed vocal criticism of NV Energy for generating huge profits over the past years and not lowering rates for customers of Nevada Power. [...] NV Energy’s profits increased 27.7% in 2014, yet the supplier has not introduced any electricity rates breaks to its customers since it was acquired by Berkshire Hathaway.“ [2]
Over the short term, the incumbents will get their way by flexing their political muscle, but this will only delay the inevitable. Electricity spot prices are at their highest during daytime, while people are at work and their solar generators put power into the grid. Utilities want to pay wholesale for this power, then turn around and sell it to non-solar consumers at the top rate. People return from work as their solar generators become inactive, so they will have to buy power at retail rates. For now, utilities will win both ways.
But what this means is that as storage prices drop, it will be more economical to invest in storage capacity in order to capture the valuable power during the day and use it during the night. This will deny utilities the demand-smoothing services that they currently enjoy, so they will have to increase their capex for peak generation, leading to higher rates for everyone else, which in turn will encourage _more_ customers to install solar and storage, etc. Soon after, people will start disconnecting from the grid altogether; welcome to Uber Energy.
Tectonic plates accumulate tension slowly, but they rearrange quickly.
[1] http://cleantechnica.com/2015/09/01/review-of-net-metering-s...
[2] http://www.casinonewsdaily.com/2015/11/26/major-casino-opera...
[reposted from a previous discussion on the topic because the thread had dropped off the front page when the comment was written]
If energy costs are so dependant on location and distance why don't we actually acknowledge that in the pricing? If your city is not generating energy why should it pay the same price as one that is?
Net metering needs to be phased out at some point in the future. Not ended abruptly today.
1) Net metering means that the power company is required to buy electricity at retail rates from their customers instead of wholesale rates, which puts quite a burden on them. Why should they have to buy at a higher rate?
2) Electric companies for decades have been rolling the cost of transmission into the variable rate portion of people's bills. This means that larger consumers (who tend to be richer) have been subsidizing the poorer customers. This is generally considered a good thing by most, since it allows poorer people to have electricity (because you don't want to live in a society where some people have electricity and some don't). The solution here is to raise the fixed portion of the bill to cover the true cost of transmission, and then place a tax on those who go "off grid" to straight out subsidize the poor, so it's more obvious that is what is happening (And presumably most people would still support).