Risks of Going Solar

On February 22, 2016, Catherine Wolfram posted the blog Risks of Going Solar on the Energy Institute at Haas blog, part of the University of California Berkeley.  I posted the following, which I am adding to my blog.

Of the various regulatory Risks of Going Solar, Catherine Wolfram identifies two biggies, reducing the size of the net metering interval and shifting the rate design to include a smaller energy charge and a greater fixed charge.  But the risk of these two can be much larger than Dr. Wolfram suggests.  Reducing the size of the net metering interval exposes rooftop solar customers to the possibility of negative prices, while cost re-classification could result in (greater) demand charges instead of greater monthly customer charges.

In “Renewable Electric Power—Too Much of a Good Thing: Looking At ERCOT,” Dialogue, United States Association for Energy Economics, 2009 August,[1] I point out that a surplus of wind in West Texas forced the wholesale price for electricity below zero for about 25% of the pricing periods during that April, at least in West Texas.

Transmission constraints generally kept these negative prices from spreading to the rest of Texas.  Negative prices did spread to other parts of the state for just less than 1% of the rating periods.  As Dr. Wolfram well pointed out, these pricing periods are sometimes as short as 15 minutes (as they were in West Texas at the time), though are often one hour.

Many ISO do not seem to allow prices to go negative.  In West Texas, the combination of transmission constraints and the various credits[2] given to wind led to negative prices.  I believe that similar combinations elsewhere will force ISOs to allow negative prices in their dispatch programs.

I have long seen the need for utilities outside the footprint of an ISO to implement real time “value of solar” prices that are similarly negative.  Hawaii seems to be ripe for such negative solar prices.  Utilities outside the footprint of an ISO can implement “value of solar” prices using a Walrasian auction, as is discussed in many of my articles.

I actually disagree with the concept of a separate price for “value of solar.”  If we are to use prices to influence generation, there shouldn’t be a separate price for solar versus other spot generation imbalances.  A different price for unscheduled versus scheduled generation, yes, but not a separate price for just solar.

There will often be many prices during any pricing interval.  For instance, a single 15 minute period may be part of a 24×7 contracted delivery of power with one price and part of a 16×5 contracted deliveries with another price.  A third price might be applicable to variances.  Variances would include both solar that is dumped into the system and hiccups in the 24×7 or 16×5 deliveries, whether the hiccup is positive or negative.

Utility rate making often includes the concept of cost classification, where costs are identified as energy related, customer related, and demand related.  In the context of Risks of Going Solar, customer related and demand related are combined into the concept of a fixed charge.

The discussed increase in the monthly charge is only one way to reduce the energy charge.  The other way, and I believe a better way, to decrease the energy charge is to increase the demand charge, or to implement a demand charge when there is not a demand charge in place.

Customer charges impose greater burdens on small, often lower income, residential customers, while demand charges tend to protect these smaller customers, as is discussed in

  • “Curing the Death Spiral,” with Lori Cifuentes (Tampa Electric Company), Public Utilities Fortnightly, 2014 August;[3]
  • “Demand a Better Utility Charge During Era of Renewables: Getting Renewable Incentives Correct With Residential Demand Charges,” Dialogue, United States Association for Energy Economics, 2015 January;[4] and,
  • “Fairly Pricing Net Intervals While Keeping The Utility Financially Healthy,” 48th Annual Frontiers of Power Conference, cosponsored by The Engineering Energy Laboratory and The School of Electrical and Computer Engineering, Oklahoma State University, Stillwater, Oklahoma, 2015 October 26-27.[5]

Thus, as we see a continued growth in solar, I see a growing need for finer pricing intervals and a growing need for demand charges.  Fortunately, the huge growth in interval meters allow these better rate designs.  We just need to political will to implement something other than a monthly charge for energy.

[1] http://livelyutility.com/documents/USAEE-ERCOT%20Aug%2009.pdf

[2] such as production tax credits and renewable energy credits

[3] https://www.fortnightly.com/fortnightly/2014/08/curing-death-spiral?authkey=54d8da5efd3f76661023d122f3e538b4b3db8c8d5bf97a65bc58a3dd55bb8672

[4] http://dialog.usaee.org/index.php/volume-23-number-1-2015/271-lively

[5] A copy is available on my website, www.LivelyUtility.com.