Navigant Research Blog

The Case for Net Metering

— January 23, 2012

It may not be as sexy as the oft-celebrated feed-in tariff (FIT), but net metering is the policy that’s driven U.S.  solar photovoltaics (PV) growth to date.  A simple billing arrangement that lets a customer’s electric meter spin backwards, net metering ensures that participating customers receive credit for electricity their systems generate during daytime hours, when they might not be home.  And now, in the largest of those markets – California – this workhorse of the solar policy world is under attack by the state’s investor-owned utilities (IOUs).   

While growing numbers of clean energy advocates   trot out some impressive statistics about the virtues of FITs, the fact of the matter is that net metering has been the prime driver behind solar PV and small wind installations in the U.S., with 43 states currently offering this policy to help consumers extract the greatest value from on-site power in which they have often invested their own hard earned capital.  In essence, net metering allows a customer to barter with their host utility with solar PV installed behind the customer retail meter.  To utilities, however, net metering is perceived as a threat, and they have been relying upon an outdated cost analysis as the reason-du-jour to lobby against continued customer access to net metering. 

A new study by the consulting firm Crossborder Energy of the alleged “cost shift” impacts of net metering on those customers in California who enjoy net metering with solar PV (and the vast majority of customers that do not have solar PV) sheds some important light on this topic.  Interestingly enough, the study focuses on the Pacific Gas & Electric (PG&E) service territory, since that is the region where past studies have indicated that 87% of the net cost shifts occurred.  Nevertheless, a recent radical restructuring of PG&E’s rates, which lowers the rates for highest demand customers, radically shrinks the perceived negative impacts of net metering on overall customers.  The end result?  The study shows a cost shift of $.00064 cents/kWh; in other words, virtually nothing.  Furthermore, the study confirms no significant cost shifts in other IOU service territories or for commercial customers.

The Three Solar States

To better understand the dynamics of net metering, the Crossborder Energy study breaks down three scenarios (or “states”) that a customer with on-site renewables enjoying net metering are in during different times of the day:

  • The “Retail Customer State.”  The sun is down and there is no PV production and all energy flows into the house from the utility grid.  The customer is a regular utility customer just like everybody else.
  • The “Energy Efficiency State.”  The sun is up and there is some PV production, but not enough to serve all instantaneous loads.  Here the customer is served both with power from the solar system as well as with power flowing in from the grid.  In this state, the renewable distributed energy generation (RDEG) serves as a means to reduce the customer’s load on the grid, in the same fashion as a more efficient air conditioner.
  • The “Power Export State.”  The sun is high overhead and PV production exceeds the customer’s instantaneous use.  In this state, the solar power flows into the house to serve the entire load, with the excess power flowing back out to the neighborhood grid.  These exports run the meter backward, providing the solar customer with compensation from the utility for these power exports in the form of bill credits that can be netted against the customer’s imports.  In essence, this is a bartering deal. 

It is this last “power export” state that is what makes customers smile, but utilities frown. 


Another overlooked benefit of net metering is that the output from RDEG reduces the IOU’s retail sales, because the solar customer serves its own load.  Since California utilities operate in a market where revenue is decoupled from sales, this drop can be viewed as a benefit to the utility since it reduces the utility’s own obligations under the state’s aggressive Renewable Portfolio Standard (RPS).  Given the challenges with siting and building transmission to large scale wind, geothermal and Concentrated Solar Power facilities for utilities such as San Diego Gas & Electric, this is an important point that many microgrid advocates such as General Microgrids have been making. 

Multiplier Effect

California boasts the most accommodating net metering policies in the United States for consumers, offering this bartering value proposition to virtually all forms of renewable energy.   Along with a new policy of paying behind-the-meter solar PV generators for excess generation beyond annual consumption, the state has also adopted virtual net metering for low-income multi-family residential buildings and complexes.  This program allows customers that might not otherwise be able to receive the benefits of on-site generation to join together to install a larger solar PV or other renewable energy system that can serve the group.   

To accommodate locations with multiple generation sources — but served through a single point of common coupling — California also allows net metering for what it calls “multiple tariff facilities.”  Under multiple facility net metering, billing credits are based on the proportional contribution of the energy production (in terms of kWh) of each net metering-eligible generator over the applicable billing period.  This is an important policy for facilitating RDEG aggregation platforms such as microgrids, in the sense that it allows for such aggregation platforms to utilize multiple forms of generation and/or fuel sources in the most cost-effective manner.

As reported previously, 2011 was a banner year for solar PV in California.  And the state ended the year on a high note, with a record amount of installations and reservations for behind-the-meter, rooftop systems – RDEG that has been stimulated, in part, by net metering.  To pull the plug on this option now would seem foolish, given the updated economics.

 

Keystone Delay Nothing to Shout About

— January 20, 2012

The so-called “cancellation” of the Keystone XL pipeline, designed to bring heavy oil from the tar sands of Alberta, Canada to the Midwestern United States, is being trumpeted as a major victory for U.S. environmentalists as well as a controversial move by President Obama that will provide ammunition for his Republican opponents in the November election.  The latter is almost certainly true; the former is more questionable.

Briefly, Obama declined to issue a permit for the expansion of the Keystone pipeline, owned by TransCanada, which would increase imports from carbon-intensive oil sands into the U.S. by up to 830,000 barrels a day.  Mined (not pumped) from deep deposits found below the boreal forests of Alberta, oil sands comprise a gluey mixture of sand, clay, and bitumen.  Studies indicate that on a “well-to-tank” basis, fuel from oil sands release 82 percent more greenhouse gases than light crude from, say, Saudi Arabia.  In both North America and Europe, opponents are trying to label oil sands “dirty” and make their products too expensive to transport and sell.  In an ideal world, this would lead to more use of alternative fuels, solar power, electric vehicles, and so on.  Unfortunately we don’t live in an ideal world, and there are many misconceptions around the Keystone XL dust-up.

  1. Less oil imported from oil sands does not lead directly to more use of renewables.  This is not a zero-sum game.  Total U.S. imports of fossil fuels are not going to go down because one pipeline doesn’t get built, or expanded, nor is investment in solar power, wind, hydrogen infrastructure, or any other cleantech energy source going to rise as a direct result.
  2. Keystone is only one front in a wider war.  Texas oil company Kinder Morgan, for example, has proposed an expansion that would more than double the capacity of its Trans Mountain pipeline carrying Canadian oil to Vancouver, to 700,000 barrels per day.  “The expanded capacity would likely enable more tankers to ship Albertan crude to refineries along California’s coast,” writes Maria Gallucci on InsideClimate News.
  3. The Keystone XL project, and the oil it’s designed to carry, are not going away. “As for the oil sands, the initial new volumes will reach the United States aboard trucks and railroad tankers, providing time for Obama or his successor to approve the pipeline in the beginning of 2013, and for Keystone to be finished just in time for the bulk of the bitumen in 2015,” observes Steve LeVine, on his blog The Oil and The Glory.

Environmentalists who want to limit the imports of nasty oil from Canada’s oil sands are fighting the wrong battle, argues Lisa Margonelli, on TheAtlantic.com:  “We need to stop fighting oil development project by project — and instead focus on passing a Low Carbon Fuel Standard (which could make the Keystone XL economically unviable), and on reducing oil consumption overall.”  Opponents of the Keystone project are like drug warriors trying to interdict cocaine shipments along America’s borders: they need to lower demand at the point of consumption rather than trying to block the supply.  As long as Americans want to drive gas-guzzling vehicles, the market will operate to supply them with the fuel, no matter how unclean or expensive or distasteful the stuff is.

“Once the oil’s flowing, it has to go somewhere,” Tony Clark, chairman of the North Dakota Public Service Commission, told CBS News in a nice summary of economic doctrine.

In fact, economic forces alone may eventually stop big, dirty oil projects like Keystone XL.  Oil sands become unprofitable when the price of oil on the world market drops below a certain level – perhaps as high as $80 a barrel, certainly anything lower than $50 a barrel. I predicted more than a year ago that oil prices were going to drop; right now they are being propped up by Iran’s threats of gunboat diplomacy in the Strait of Hormuz.  Nick Butler, the chair of King’s Policy Institutes at King’s College London, agrees with me: On balance, … the main worry for the world’s oil producers is that prices will fall. Three factors support this view – supply, demand and politics. … The reality is that oil demand is peaking.”

In 2007, Butler notes, the International Energy Agency forecast that demand would rise to more than 116 million barrels a day over the next two decades.  The most recent IEA forecasts see demand barely reaching 100m b/d.  Like a weak-willed cokehead, the world is slowly, reluctantly overcoming its addition to fossil fuels.  Regardless of political maneuvering, that makes the future of the oil sands dubious.  One delay of one pipeline, though, is nothing to shout about.

 

Smart Homes Coming, At a Gradual Pace

— January 19, 2012

The promise of smarter homes continued to make noise at this year’s CES, the world’s largest consumer electronics show.  But nothing really wowed me.  You might call this an incremental show – and that’s not necessarily a bad thing.

Keep in mind that CES is huge, with 1.86 million net square feet of space used by exhibitors, record crowds (upwards of 153,000 people) and a record number (3,100-plus) of exhibitors showing off their newest gear.  Among the products, companies and people I saw, these stood out for various reasons:

Devices

Nest (Nest Labs): It’s hard not to like what Nest Labs has done to the lowly thermostat.  The much-publicized Nest device combines the simplicity of an iPod (the company founders, in fact, helped develop Apple’s iPod) with the ability to “learn” how you use energy to heat and cool your home.  The device then aims to help consumers reduce energy consumption and thereby lower their costs.  Company co-founder Matt Rogers told me the catalyst for Nest was to help people “save a ton” on energy consumption with an easy-to-use device.  After launching online last November, Nest Labs quickly ran out of stock.  Orders are wait-listed now as manufacturing ramps up.

Belkin’s WeMo Home Control Switch: This Wi-Fi connected switch sits between a wall outlet and small home appliances.  You turn it on or off through an app on iOS, Apple’s mobile platform, and the switch can be paired with a motion sensor for more functionality.  Availability of these WeMo devices is expected in the summer of 2012.  Other related devices – such as garage door openers, door locks, and baby monitors – are expected to join the WeMo family as well.

Retail

AlertMe and Lowes’s: UK-based AlertMe has partnered with home improvement chain Lowe’s to provide a cloud-based home management system.  AlertMe will be the platform behind Lowe’s new Iris service for North America, which enables consumers to monitor and control their homes through a smartphone or a computer.  The Iris service will launch in mid-2012.  AlertMe CEO Mary Turner told me the goal is to provide consumers with not only an intelligent digital dashboard for their homes, but also the ability to put their homes on “cruise control.”

Technology

ZigBee, Z-Wave, HomePlug, UPnP, HomeGrid (G.hn): Many of the leading networking technology groups were present at CES, as expected, each vying for greater traction in the connected home space.  While each has something to offer, there isn’t room here to dissect them in detail.  Suffice to say, many vendors have interesting products on the market or coming soon based on these technologies, which is very encouraging.  But it all makes for a cluttered landscape in consumers’ minds, and that slows the emergence of mainstream solutions.

Throughout the show, I heard people say, essentially, “The technology is available for smarter homes – it just needs to be deployed.”  For that to happen, I was told, both utility operators and consumers need more education, which while true, means a slower rate of adoption.  Sure sounds incremental to me – and should be expected, given the sluggish economy and the mood of consumers to move cautiously at the outset of trends that involve something as complex as the modern, connected home.

 

China’s Cleantech Gap With U.S. Grows

— January 18, 2012

Following the announcement of a major renewables-plus-energy storage project in Hebei Province, the Chinese government has released its “Second National Assessment Report on Climate Change,” which concludes that “global warming fed by greenhouse gases from industry, transport and shifting land-use poses a long-term threat to China’s prosperity, health and food output.”

Among the consequences of climate change in China, the world’s largest emitter of carbon dioxide, will be declines in grain production of 5 to 20 percent by 2050, “severe imbalances in China’s water resources,” with catastrophic flooding in some areas countered with severe drought in other regions, and increased public health problems from air pollution, particularly in the country’s coal-producing regions.

“China faces extremely grim ecological and environmental conditions under the impact of continued global warming and changes to China’s regional environment,” concludes the 710-page report.

The United States released a similar report, Global Climate Change Impacts in the United States, in 2009, with an update scheduled for 2013. That report’s findings are equally grim, but have mostly been muted by a political environment in which a sizable components of the Republican Party, including all of the candidates for president save the front-runner, Mitt Romney, continue to deny that global warming is even real. We live in interesting times, when the leaders of a nominally Communist government that restricts its citizens’ access to the Internet are more candid and realistic on the issue of global climate change than the leaders of one of the two major political parties in the United States.

China’s efforts to slow climate change also contrast starkly with the near-complete inaction of the U.S. government. China’s struggle to limit the disastrous effects of its burgeoning coal power industry was detailed in this Atlantic feature by James Fallows. “In the search for ‘progress on coal,’ like other forms of energy research and development, China is now the Google, the Intel, the General Motors and Ford of their heyday—the place where the doing occurs, and thus the learning by doing as well,” Fallows wrote.

“You can think of China as a huge laboratory for deploying technology,” a U.S. official posted in China told the Atlantic. China has also moved to the forefront in developing new nuclear power reactors, including liquid-fuel reactors that use thorium, rather than uranium, as their primary fuel, as I detailed in this report on Wired.com.

The “cleantech gap” between China and the United States recalls the so-called “missile gap” between the Soviet Union and America in the late 1950s and early 1960s, a scientific and technological divide that was crystallized by the Sputnik launch. The missile gap turned out to be an invention. The cleantech gap becomes more real by the month. The reasons are manifold, and they include the capability of a command economy, which China’s to a large degree still is, to move quickly on major projects like clean coal and advanced nuclear plants. Free markets are, according to theory, more nimble and responsive than centrally planned ones. But when it takes a decade just to get a permit for a new nuclear plant (much less build one) in the U.S., and a couple of years to go from conception to completion in China, economic theory doesn’t hold up.

China’s climate change dilemma, particularly around increasing use of coal, is stark, and it may not be solved without wrenching environmental and social changes that could tear at the fabric of society. But at least they’re trying to do something about it.

 

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