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Utility Solar Business Model Flaws: CPS Energy's "SunCredit" Isn't the Answer

As an owner of a small (16 kWp) PV plant, the local utility recently informed me that they would soon be discontinuing net metering in favor of a fixed payment per renewably produced kWh (cheerily termed a SunCredit), which is to be determined annually. Specifically, the retail value of a grid-delivered kWh is 9.9 cents while the value of a PV produced kWh is only 57% of that (5.6 cents). The remaining 4.3 cents per kWh is absorbed in the costs of transmission lines, transformers, administration, maintenance and the like.

The utilitys official rationale is that with more and more solar PV being installed, “…the costs of the utility infrastructure are borne by fewer customers—those who don’t have solar systems”.  By the same logic, the utility will also need to develop a surcharge for those who reduce their energy consumption by installing energy saving measures. 

There are a multitude of facets to this policy that could be discussed including; the actual costs of infrastructure (a PV kW is likely delivered to a very localized section of the grid), social engineering (wealthier people are more likely to have PV plants and can therefore subsidize others), peak demand costs that the utility is able to shed, and continued efforts to incentivize renewable energy.  This policy, however, has another implication which is that a renewably produced kWh is somehow different from an unused kWh realized through efficiency gains.

For example, I might choose to change the thermostat set point to reduce energy costs at the expense of my comfort.  I could also invest capital in additional insulation, radiant barriers, solar water heating, timers, occupancy detectors, or a myriad of other systems.  The result would be that each day, the electrical meter would record a few less kWh and the utility would realize less revenue while their infrastructure costs remain the same.  Alternatively, I might choose to invest the same capital in a small wind turbine or a few kW of PV.  Either investment produces the same result – the utility receives less revenue while their costs remain fixed.  However, under the SunCredit policy, only 57% of the renewable energy investment potential is realized.  The likely result will be reduced investment in PV generation (I know I have cancelled plans to add to the system).   

It could be said that the difference between a renewable and a saved kWh is in its potential to be metered.  Rate structures currently in use by the local utility can only be applied to a metered item, so the only way for the utility to maintain its infrastructure is to bias the rate structure against PV using SunCredits.    

The SunCredit approach seems ultimately flawed, however.  At some point, PV generation and storage may become inexpensive enough so that many people will opt for off-grid rather than grid connected approaches. Eventually, relatively few grid users could be left to pay for the infrastructure.   Highway departments appear to be suffering a similar problem as automobiles use less gasoline per mile, the taxes available for maintaining the highways diminish. 

So what’s to be done?   One approach could be to adopt a policy similar to that practiced by the real estate industry to account for fixed asset costs.  If you rent an office space, you are charged rent for that space, plus a surcharge for common area maintenance (CAM).  The CAM is recomputed every year based on the costs incurred by the building divided by the number of tenants in the building (with some fudge factors applied for the type and amount of the space). Similarly, the utility would calculate their CIM (common infrastructure maintenance) and divide by the number of connected users, also using some fudge factors for the type of service. The CIM yearly costs would be spread over each monthly billing cycle for every connected user.   In this manner, the infrastructure costs would be distributed among each user, not units of energy.  Another approach could be to allow net metering only after a minimum monthly energy usage is met.  The minimum usage would be based on the CIM costs and total kWh delivered throughout the grid. 

Either approach would allow for excess energy to be credited at the retail rate.  With an assurance that CIM costs are covered, the utility is free to allow unrestrained energy production into their grid.   If the total energy produced by the customer’s PV plant exceeds the minimum usage value or the CIM cost, the PV plant owner could still enjoy a zero dollar electrical bill or obtain a credit while the utility continues to receive revenue when it sells the excess energy to someone else.  In this manner installation of more PV capacity would be encouraged while simultaneously allowing the utility to recoup their infrastructure costs. 

Lead image: PV on a Roof via Shutterstock

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