Net Metering and Distributed Generation

David K. Owens Executive Vice President Edison Electric Institute

Council of State Governments

Net Metering Webinar

January 13, 2015

Washington, DC

Electricity: A Great Value

Sources: U.S. Department of Labor, Bureau of Labor Statistics (BLS), and U.S. Department of Energy, Energy Information Administration (EIA).

February 2014 © 2014 by the Edison Electric Institute. All rights reserved.

Transportation

Sources: U.S. Department of Labor , Bureau of Labor Statistics (BLS), and U.S. Department of Energy , Energy Information Administration (EIA).

February 2014 © 2014 by the Edison Electric Institute. All rights reserved.

(Percent)

HealthCare

NaturalGas

Gasoline(regular)

HousingConsumerPrice Index

Food &Beverages

Electricity

0

20

40

60

80

100

120

140

160

180

200

220

240

210%

140%

77% 73%76% 71% 70% 65%

Increase in cost of selected

consumer goods

1991-2013 (nominal dollars)

Changes in Electricity Prices Compared

to Other Consumer Products

3

We Now Spend 4x More on Electric Apps Than on Electric Bills

Source: Bureau of Economic Analysis Gross Domestic Product Survey..

20%Electric

Bills

80%ElectricApps

Source: Bureau of Economic Analysis Gross Domestic Product Survey.

Electric Apps (80%)

Co

ns

um

ab

le

Landline and cellular phone services 20%

Internet access 10%

Repair of household appliances,

audio-visual, and computer

equipment

2%

Cable and satellite television, radio

services, video media rental 11%

Du

rab

le

Personal computers, software,

and accessories 12%

Television, audio, and video

equipment 13%

Household appliances, therapeutic

medical equipment, telephone and

facsimile equipment, electric

appliances for personal care

12%

4

The Electric Distribution System Is In Transition

Customers are gaining new distributed energy resource (DER) options, including distributed generation (DG).

The structure and operation of distribution systems will change as “smart” infrastructures are built out and new DER technologies are deployed.

Ultimately, power will flow in 2 directions across distribution systems.

Supporting a safe and reliable grid infrastructure is critical to the deployment of new technologies.

5

Distributed Generation

What is Distributed Generation (DG)?

DG systems are small-scale, on-site power generation located at or near customers’ homes or business. Some common examples include solar panels, energy storage devices, fuel cells, microturbines, small wind turbines, and combined heat and power systems.

6

Changing Electric Distribution Grid: Centralized to Increasingly Distributed

IntegratedGrid

Platform

Today Future

7 Source: EPRI

Gird Evolution: One-Way Road to Grid of Things

Grid increasingly becoming a multi-directional network interconnecting:

millions of intelligent consuming devices

flexible distributive energy resources including DG and back-up generation

and it is an enabler of other technologies

Operating such a system requires:

greater situational visibility

collaborations with customers and

energy services providers

8

DER may reach 33% of Installed US Capacity by 2020

This means millions of distributed energy resources will need to be

integrated across US distribution systems

33%

Sources: EIA, EPA, DOE, FERC, Carnegie Mellon, GlobalData

(90 GW)

& Other Gas DG (140 GW)

(40 GW)

(240 GW)

(1050 GW)

9

Public Policies Are Spurring DER Adoption

Source: EIA

State Renewable Policies State Net Metering Policies

EEI, Energy Supply Department, 04/19/2013 2

Utilities with Net Metering:

All utilities bound by the requirements in the states above.

Utilities in Texas, Idaho and South Carolina have voluntary net metering programs.

Feed-In Tariff (FIT) What is it?

FIT-like programs are also called standard offer contracts or CLEAN Initiatives (Clean Local Energy Accessible Now) and many utilities are giving their own programs individual names. Typically, a FIT or FIT-like program requires a utility to purchase electricity (and sometimes also RECs) from eligible renewable generators, independent of any energy consumption by those generators. The FIT provides a guarantee of payments ($/kWh) for the full output of the system for a guaranteed length of time and ensures access to the grid. FIT rates typically vary by technology, project size, and other project-specific variables. Some FIT-like programs are being implemented with rates that adjust periodically based on market or other conditions.

Benefits of a FIT:

By charging a customer for their consumption (as if they had no solar) and separately paying them for the value of their generation, a FIT solves the cross subsidy/cost shifting/revenue loss problems associated with net metering. The utility still charges for the full costs of providing service to a customer.

State policy

Voluntary utility programs

Mandatory RPS

State Renewable Goal

State Policy

Voluntary Utility

Programs

10

U.S. Solar Capacity

Source: Solar Electric Power Association

11

Other Factors Contributing To The Transition

Declining cost of PV and new leasing models

Customer preference for “choice” or “self-supply”

Evolution of “smart” infrastructure technologies

Outage concerns – storms; cyber and physical security

Department of Defense policy to expand renewables, “islanding”

12

Grid Evolution Requires Increasing Investment

Grid Technologies

Digitization

Data Analytics

Distribution system sensing and monitoring

Controls to enhance operational efficiency and to integrate new resources to improve reliability and grid resiliency, achieve power supply diversity, and achieve evolving clean energy goals

13

Typical Energy Production and Consumption for a Small Customer with Solar PV

Source: Value of the Grid to DG Customers, Institute for Electric Innovation, October 2013

14

Current Rate Designs Work Poorly for DG

What’s the Problem?

Most rates recover a large share of fixed costs

through variable use charges.

DG customers continue to rely on the grid and increase grid costs, most of which are fixed.

Under most rate designs, rates to customers with DG fail to recover right amount of fixed grid costs.

Net metering makes the cost-recovery problem worse, shifting fixed costs to non-DG customers.

15

Value of the Grid to DG

16

Average Residential Customer: Non-Energy Charges as Percent of Typical Monthly Bill

Average Monthly Usage (kWh)* 1000

Average Monthly Bill ($) * $110

Typical Monthly Fixed Charges

Ancillary/Balancing Services $ 1

Transmission Systems $ 10

Distribution Services $ 30

Generation Capacity ^ $ 19

Total Fixed Charges for Customer $ 60

Fixed Charges as Percent of Monthly Bill 55%

* Based on Energy Information Administration (EIA) data, 2011 ^ The charge for capacity varies depending upon location. This is just an estimate.

Source: Value of the Grid to DG Customers. IEE Issue Brief. Updated October 2013. Available at www.edisonfoundation.net/IEE 16

New Regulatory Policy and Rate Design Are Needed

Reform net metering policies.

Adopt new approaches to designing rates for DG so that all users of the grid contribute to grid infrastructure.

Many state legislatures and state commissioners are addressing this matter.

17

The German Renewables Experience Has Valuable Lessons

Source: German Federal Ministry of the Environment, Nature Conservation, Building and Nuclear Safety

The Economist, 12 October 2012

EEG surcharge: Share of subsidy FIT paid for by customers in their electricity bills, the difference between the total FIT tariff and the wholesale price of electricity. EEG cost per year: Total annual cost of the EEG surcharge. Total disbursements to renewable energy providers in addition to their proceeds from wholesale markets.

Germany: Overgenerous Subsidies

19

Wholesale Prices Have Plunged

20

International Comparison Germany’s Retail Electric Rates Have Skyrocketed

COUNTRY

AVERAGE RATE

$/MWh 2013

Mexico $0.091

United States $0.121

OECD Total $0.175

United Kingdom $0.229

Japan $0.243

OECD Europe $0.253

Italy $0.305

Germany $ 0.388

Denmark $0.394

21

Lessons Learned from Germany (and other OECD countries)

Subsidies were too generous

(Level of subsidies was too high for the market, did not follow technology cost reductions,

particularly in solar power)

Growth of renewables was too rapid (Grid and markets cannot adjust quickly enough

to the rapid deployment of renewables, particularly wind and solar)

Impacts

Reduction in wholesale prices adversely impacts generators and the reliability of the grid

Increase in retail electricity prices adversely impacts consumers and competitiveness

Multiple redesigns of the incentive programs adversely impacts the renewable industry

Additional investment needs in the T&D networks will further raise costs

22

Conclusion

The U.S. electric grid delivers a valuable product essential to all Americans.

The electric power industry is leading the transformation to make the grid more flexible and more resilient to meet the growing demands of our digital society.

Everyone who uses the grid should help pay to maintain it and keep it operating reliably.

It is vital for our Nation to have a diverse supply of safe and reliable electricity, and electric rates should be fair and affordable for all customers.

23

Distributed

Generation &

Impacts on

Consumers

Sheri Givens, President

Givens Consulting LLC

The Council of State Governments eCademy

January 13, 2015

Overview

Consumer Groups

Consumer

Education

Consumer

Protection

25

Consumer Groups

National Association of State Utility Consumer Advocates (nasuca.org) – Residential/small business utility consumer focus with over 40 state member offices (e.g., independent, OAGs, non-profits).

Many advocate offices are statutorily tasked with recommending legislation.

In November 2014, approved “Protections for Distributed Generation (DG) Consumers,” Resolution 2014-05.

Ensure Education, Full & Fair Protection, and Marketplace Standards.

National Consumer Law Center (nclc.org) – Low-income consumer focus.

Consumers Union (consumersunion.org) – Policy division of Consumer Reports.

American Association of Retired Persons (aarp.org) – 50 and over focus.

26

Consumer

Education Residential Solar Photovoltaic (PV) Lease v. Purchase – Neither is “Off-the-

Grid.”

Purported increases to electricity prices (up to 5% per year) and projected savings.

If signing a twenty-year lease, you need to be informed about:

Annual Price Escalators (up to 4% per year);

Selling Your Home and Purchaser’s Credit Score Requirements;

Tax Credits & Rebates (e.g., 30% federal, state, local, utility, manufacturer);

Warranties and Homeowner Responsibilities;

End of Contract Options – Renew, Upgrade, or Remove (typically, no purchase option).

Net Metering (43 States & DC) credits residential PV customers the retail rate and exempts them from paying utility’s fixed charges which can account for 50-60% of the typical utility customer’s bill (US Energy Information Administration). Questions arise whether PV customers are paying their “fair share” of their use of the grid and how costs might shift to those who can least afford them.

27

Consumer Education:

Resources Federal

US DOE’s Database for State Renewables and Efficiency (DSIREUSA.org)

NREL’s PVWatts Calculator (pvwatts.nrel.gov)

State

Utility Commissions (ex. Washington)

Consumer Advocate Offices (ex. Residential Utility Consumer Office)

Attorney General Offices (ex. Arizona)

Utilities (ex. MidAmerican)

Educational Institutions (ex. Louisiana State University)

Better Business Bureau (ex. Consumer News, Complaints)

28

Consumer

Protection Types of complaints range from harassing sales tactics, deceptive

advertising, overestimated bill savings, undisclosed fees, faulty installations, etc.

Where Complaints Are Filed May Surprise You – BBB, Yelp, RipOffReport.com – rather than uniform state or federal agency.

States Taking Action include:

Washington – UTC’s Interpretive Statement Requesting Clarification from State Legislature on Jurisdiction over Third Party Solar Leasing Companies.

Louisiana – SB63 prohibiting leasing companies from applying for state tax credits if solar installation is incomplete.

Arizona – OAG Consumer Alert regarding Third Party Solar Leasing Company Fraud.

Federal Action

Bipartisan Congressional letter regarding solar leasing company constituent complaints on “potentially deceptive sales tactics” to US Federal Trade Commission and Consumer Financial Protection Bureau.

29

Conclusions

Education. Consumers need access to, and knowledge of, a variety of residential solar educational resources prior to purchasing or leasing a residential PV system.

Protection. Consumers should have one or more clearinghouse(s) for complaints relating to solar leases and purchases.

Collaboration. Policymakers, legislators, regulators, advocates, and utilities should work together collaboratively to promote a variety of distributed energy resources as part of a diverse fuel mix that achieves affordable, reliable, and fair rates for all consumers.

30