Putting the life back in science fiction

It’s both “balancing a cost structure that’s out of whack” and politics. As long as I have paid for my own utilities I have had separate connection and consumption charges for water, sewer, gas, and electricity. I thought it was like this everywhere. Apparently, some electric utilities have historically rolled all of the fixed costs of maintaining the distribution infrastructure into the per-unit consumption charge. This is in effect an infrastructure discount for entities that need a reliable grid connection but don’t buy very much electricity through it, paid for by entities that need a reliable grid connection and do buy a lot of electricity.

Wires, poles, and transformers cost about the same and need about the same amount of maintenance whether your household is running a 50 inch TV, a 20 inch TV, or just reading by a single light bulb. It costs more to build a connection that can handle a peak demand of 10000 watts instead of 3000 watts, but having built a connection of certain peak capacity, the maintenance costs remain the same whether actual average demand is 900 or 500 watts.

If you start charging connection fees that approximate the actual infrastructure maintenance costs, and decouple them from consumption via that infrastructure, you’d finally be making rural and suburban low-density living pay its own way for electrical infrastructure. Hurray! But you’d also saddle low-consumption households which tend to be lower income with higher bills. Boo! And you’d reduce the financial incentives to efficiency in higher-consumption households and businesses. Boo!

I am of the opinion that if you want sustainable growth of rooftop solar that can’t be sabotaged every time a state gets a conservative governor or conservative utility commission, it needs to be based purely on reducing the building’s own energy consumption from the grid. Not on getting paid to export power back to the grid. If you’re interested, I’ll write another post about the complex valuation of exported rooftop solar power. This one is already long enough.

The “carrot” making distributed solar without net metering work better is falling prices.

The “stick” that forces considering life without net metering is that the financial and environmental value of exported rooftop power falls as penetration rates increase. If we want to make optimal use of solar resources, the net metering incentives should fall with increasing uptake. Otherwise renewable construction will over-emphasize rooftop solar and underinvest on e.g. wind power. You’ll be displacing less GHG emissions per dollar spent if rooftop incentives are too high.

One simple way to value electricity export from rooftop solar is at the full retail rate. If your house produces a solar surplus from 10 AM to 2 PM, the exported electricity shows up as a consumption credit on your bill and you can use those “banked” kilowatt hours later in the day. This has been a common incentive for rooftop solar in the early phases.

Problem one with the full retail price credit is that the late morning to early afternoon time when solar reaches its peak output is not actually a peak demand time. In temperate climates, both winter and summer, the late afternoon to early evening time is when peak demand occurs. It’s when people get off of work and come home to cook, turn on lights, and adjust home temperatures for comfort. Exchanging below-peak surplus production from midday for peak-time consumption in the early evening over-values the surplus and under-values the later consumption. Time of day metering can fix this imbalance: installing west-facing solar panels helps supply peak demand better than south-facing panels, but south-facing panels will generate more electricity over a year (or north-facing if you live in the Southern Hemisphere), so everyone will point panels south if all electricity is valued equally over a day.

Problem two with the full retail price credit happens in regions where the utility has not historically charged a separate grid connection fee. With a large enough rooftop system your electricity bill can reach zero, but you’re actually using the grid nearly as much as before, either to draw power when it’s dark or to export power when it’s really sunny. The costs shift to everyone who hasn’t installed solar yet. This is somewhat attractive from an environmental POV when penetration rates are low and solar is popping up in upper-middle class neighborhoods — it’s kind of a carbon tax that you get to impose on your solar-free neighbors until they join the party — but it’s pretty regressive once everyone who can afford the up-front costs has installed solar. It’s putting a heavy burden on apartment dwellers or low-wealth households that don’t have the space or the money to invest in solar.

Problem three is that the distribution system wasn’t designed for bidirectional operation. AFAIK, it’s inefficient or even impossible to make use of the solar surplus when a whole neighborhood has a net solar surplus. It can’t be re-centralized and distributed to another city to be consumed; it’s wasted and might even damage equipment if no measures have been taken to protect against feeding back. I don’t know enough enough about the grid to say how hard it is to build a fully bidirectional system, but I am pretty sure such systems don’t exist now. Expending more money to generate electricity that goes to waste isn’t sensible even if you’re wasting solar power instead of fossil power.

Another simple way to value distributed solar surplus is to set it equal to the current wholesale spot price in the region where it’s generated. This is a bit less simple than a full retail credit, because it requires detailed time tracking for output and consumption. This is closer to what utilities threatened by rooftop solar would prefer (second best to paying zero for surplus power, of course).

One problem with valuing the solar surplus at the wholesale price is that it’s not recognizing the infrastructure cost savings that solar can provide. Remember in the previous post how I said that it’s the peak connection capacity that dictates grid infrastructure cost? Solar can initially shave a neighborhood’s peak capacity needs a little (with south facing panels) or a considerable amount (with west facing panels) and save not just the cost of generating extra electricity but the infrastructure needed to deliver it. But, as mentioned above, this benefit reverses once the neighborhood runs a large surplus and needs more infrastructure to export it.

Another problem with valuing solar at wholesale is that it doesn’t recognize any environmental benefits. At a CO2 externality valuation of $30 per tonne, a megawatt hour of solar power should be worth $30 more than the wholesale price if it displaces coal power or $14 more if it displaces natural gas power. That’s an unrecognized benefit of up to several hundred dollars per year, if you install a residential system in a sunny region where the grid is fossil-heavy. If you use the Stern Report’s estimate of $85 per tonne of CO2, it could be undervalued by ~$1000 per year.

I hope that simple grid demand reduction, without any surplus credit, can be made financially viable in the sunny parts of the US because that is the path least vulnerable to the whims of utility companies and the only path that can support ubiquitous rooftop generation. If you’re not trying to export a surplus, distributed generation appears on the grid as demand reduction. The power company doesn’t know if your summer electric consumption was cut in half because you started using solar power, you insulated the house better, you upgraded appliances, or you changed your behavior. There’s no “restoring fairness” charge that the utilities can make stick in the court of public opinion (IMO) to discourage solar installation, as long as solar installations don’t expect to be paid for grid exports. There are also better incentives to make financial benefits and environmental benefits align: use a combination of efficiency upgrades and rooftop solar instead of just a lot of solar, orient installations to match real household consumption patterns, invest in demand shifting or various sorts of storage to make better use of solar peaks instead of expecting the grid to become a free virtual battery (which it can’t be for everyone).

In South Australia and Hawaii the simple demand reduction already offers a financial ROI, but only because their grid electricity is extremely expensive. In Australia it’s expensive because a lot of unneeded distribution infrastructure was built in anticipation of a consumption boom that never materialized, and now that waste is being repaid with higher per-unit charges. In Hawaii it’s extremely expensive because Hawaii is the only state where a majority of electricity comes from liquid fuels, e.g. diesel generation. I’m hoping that rooftop solar gets cheap enough that people in the continental US start to see similar ROI calculations for rooftop solar — hopefully without retail electricity prices first rising to Hawaiian levels.

If US rooftop solar installation costs get down to the cost of those in Germany or Australia, large parts of the continental US would already be viable for demand-reduction rooftop solar. I think it’s plausible that it can happen because hardware costs are approximately the same everywhere and labor is actually a bit cheaper in the US. The US has a huge variety of different rules by state and municipality governing permitting, inspections, and standards for installation. A single national standard would slash thousands of dollars and weeks of time from the typical installation. The other issue is that US rooftop solar installers spend a huge amount of money on customer acquisition, e.g. advertising and preliminary estimation for prospective customers. It actually costs more per customer than the actual hardware. There’s a virtuous circle where they need to spend less on advertising once people see more systems on roofs and it spreads organically by word of mouth. Simplifying permitting would also reduce the effort/cost of preliminary estimation.