Solar PV has reached or is approaching parity with fossil fuel energy sources in much of the U.S. and distributed power generation, primarily rooftop solar PV, is disrupting the traditional electric utility business model. The fundamental problem is that as customers install solar PV on their rooftops or find alternative sources of power and even leave the grid, the utility's revenue, which is derived from selling electricity, declines. This in turn drives up rates for the utility's other customers which motivates them to also defect. Put another way the electric power market, which used to be based on a regulated monopoly provider, is giving way to a competitive market where the consumer has a choice. She can generate her own power or buy it from alternative sources such as Solar City. As battery costs drop, customers increasingly have the option of leaving the grid and participating in their own or a community microgrid.
I've blogged about several alternative solutions that utilities and regulators are proposing to meet the challenge of distributed renewable energy. The New York Public Utility Commission is moving the New York state utility industry toward a radical refinition of the utility business model. In the future in New York state the utility industry may be comprised of distributed system platform (DSP) providers, basically providing the grid but not directly selling energy. There will be an energy market with many energy providers including bulk power generators and many distributed energy generators - you and me with rooftop solar panels. Sacramento Municipal Utilities District ( SMUD) is moving from being a traditional centralized utility to a distributed utility providing localized grid services. In other words SMUD is getting out of the business of selling electricity and into the business of selling grid services. In Maryland the Energy Future Coalition (EFC) prepared recommendations for the Maryland smart grid among which the key recommendation was a new utility business model that would decouple utility revenue from selling electric power. Recently it was predicted that by 2020, the largest energy company in the world (by market cap) will not own any network (grid) or generation assets. It will just manage information about energy sources and consumers similar to Uber and Airbnb in their markets.
Some utilities like Hawaii's power utilities are embracing distributed renewable energy and adapting their business model. The Salt River Project has introduced a rate structure designed to charge solar PV customers for using the utility's grid infrastructure, but which incentivizes them through "time of generation" pricing to generate power at peak times when demand is high. Other utilities see rooftop solar PV as a threat to their revenue base and are penalizing customers who install rooftop solar PV, either by a fixed infrastructure charge or by reducing the rate the utility pays for customer-generated power.
I just came across another approach to address the problem of customers generating their own power leading to declining revenues for the utility. One utility's strategy is to not only lower the rates paid for customer-generated power but to make them (at least large customers) pay a fee (penalty) to leave the grid. There is an open question about whether this is even legal and it is being challenged in the courts.
NV Energy, which is owned by Berkshire Hathaway, is the power utility for Las Vegas. The casinos, to reduce their power costs which are significant as you might expect, have started finding alternative sources of power. For example, the Mandalay Bay is installing the largest rooftop solar PV array in the U.S. on top of its convention center (6.4-MW dc system with 21,324 solar modules expected to provide 20% of the resort’s power demand.). Others are looking to buy power on the open market. With the available alternatives the casinos and resorts are planning to leave the grid and Nevada Energy's monopoly. They want to do this because it saves them money.
The resorts and casinos consume about 7% of NV Energy's power. If they leave the grid, it will create a significant hole in NV Energy's revenue. NV Energy is an investor-owned utility and makes a profit which returns value to its investors. NV Energy's solution (with the acquiescence of the state power regulators): charge customers a fee for leaving the grid. According to the source, it will cost the casinos and resorts a fee (penalty) of $126.5 million to leave the grid. The penalty is to compensate NV Energy for investments it made to generate power for the casinos and to prevent raising rates for NV Energy's remaining customers.
The casinos and resorts are not the only customers of NV Energy to face a penalty for leaving the grid. A data storage company called Switch had the same problem last year when it decided to use renewable power to power its data center. It uses 3% of NV Energy's power and the company was told it had to pay $27 million to NV Energy to leave the monopoly's grid. Reportedly Switch and NV Energy came to an agreement where Switch is paying NV Energy to build a new solar farm in North Las Vegas. This looks like a policy whereby NV Energy pressures its big customers to remain with the monopoly and pay for its sustainability initiatives through the threat of a substantial penalty for leaving the grid.
Thanks to Derrick Oswald for pointing me to the NV Energy story.
Subscribe
Comments