Editor's Letter

June 23, 2015

The Wild West of Renewables

Disruptive innovation” has become an overused buzzword in recent years – like when a Kellogg executive called a new Pop-Tart flavor a disruptive innovation – but the word certainly applies to renewable energy and on-site generation. Their impact on the electrical utilities and consumers has created a Wild West of regulations.

Utilities make a profit by selling electricity. It’s a simple concept we all understand – the more utilities sell, the more they make. The problem is the possible disincentive that situation creates for conservation. On the other hand, new technology allows consumers and building owners to generate their own power and, in many states, utilities are required to purchase any excess from the consumer as determined by net metering. This creates a vicious cycle in which distributed generation and efficiency measures decrease utility revenues, which requires rate increases to maintain the grid and profitability, which further incentivizes users to develop their own generation, leading to more lost revenues.

In some states, new “decoupling” regulations are designed to provide other incentives (reliability, service, performance) to utilities so they can saddle up and ride efficiency hard without fear of losing their own horse flesh. “True-up” programs in some areas allow utilities and users to use net metering to settle up periodically. The utilities’ cost to provide power in a given period determines the rate they can charge consumers as well as the rate they pay consumers for their excess power.

As one can easily imagine, agreement on how to tally up on such horse trading is no easy undertaking. The various policies across states, utilities, and regulators are as numerous as were roaming buffalo back in the day. And they can change rapidly.

Take Wisconsin, for example, where the Public Service Commission decided this year that the true-up period should switch from a monthly to an annual basis. This change to the formula, some say, reduces the incentive for users to invest in on-site solar because they will be compensated significantly less for their excess during the fall and spring months. Meanwhile, users in net metered markets who don’t or can’t afford solar installations complain that they pay higher rates because of those who can get off the grid.

I’m sure that, in time, a new model will emerge for the power industry. In the meantime, it behooves building owners considering on-site renewable energy to know which way the wind is blowing on these matters in their neck of the country.

If you think you’re riding ahead of the renewable herd, take a look back every now and then to make sure it’s still there.

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