Navigant Research Blog

CPUC Passes Residential Rate Reform

— September 3, 2015

Avoid_Pitfalls_webThe recent California Public Utilities Commission decision (D.15-07-001) to alter the composition of residential electrical rates provides necessary reforms—despite suffering from poor public perceptions. While the changes reduce costs to high energy users and increase electric bills for early energy efficiency and solar adopters, they are a necessary correction to policies implemented over a decade ago during the California energy crisis and a step toward the sustainable growth of renewable energy.

Current Rate Structure

Prior to the energy crisis, the California utilities had two tiers of electric rates. Customers would pay a lower rate for each unit of energy until a baseline quantity was consumed and then a higher rate (only a 15%–20% increase over the base rate) for all additional energy. When utility revenue requirements increased significantly during the crisis, a law was passed to freeze lower rates in order to protect lower-income households from price volatility. Additional tiers were created, and increased revenue requirements were passed to the upper tiers so that the highest rate is now over 200% more than the lowest.

With high energy users paying significantly more than their cost of service, alternative options like residential solar are often in the customers’ financial interests. However, as long as the alternative costs are greater than the cost of service and less than the utility bill, individual incentives drive toward an outcome that is more expensive for the system as a whole. CPUC’s rate reform is an effort toward correcting the price signals while presenting a consistent bill to the customer and continuing to promote energy efficiency and distributed renewables development.

Components of Rate Changes

After consideration of several proposals, the utilities will return to a two-tier system with a 25% difference between high and low. The tier reduction will be implemented gradually from 2015 to 2018 to reduce rate shock to customers. A Super User Surcharge rate of 219% of the first tier rate will be charged for energy in excess of 400% of the baseline in order to maintain an incentive for conservation.

Rate Reform Comparison

Rate Reform Blog Graphic

                                           (Source: Navigant Research)

In the interest of aligning customer bills with system costs, the utilities are allowed to include a minimum bill of up to $10 per month. While residential rates blend energy and delivery costs into a single volumetric rate, the delivery costs are largely fixed and are based on customers’ maximum usage. Even if a customer’s net usage is near zero due to onsite generation, the grid is expected to be available on demand, and the minimum bill reflects this cost.

By 2019, customers will be moved to a default time-of-use (TOU) rate. Cost of service is greater when demand is high in the late afternoon and early evening, and lower overnight when demand is low. Charging customers commensurate with the system costs is expected to drive more efficient behavior. Utilities are required to begin developing pilot TOU tariffs immediately and deliver a final tariff in 2018 for implementation the following year.

Effects on Distributed Resource Economics

While these changes will reduce the incentive for the highest energy users to implement energy efficiency or rooftop solar, bringing the bottom tiers closer to the cost of service may allow for an overall increase in solar adoption. Similarly, customers already driven to solar by high utility rates may see a longer-than-expected payback period because of the flattened tiers. Despite the criticism for lowering costs for high energy users and increasing them for lower use households, the rate reform was a long delayed but necessary correction to support California’s energy policy goals.

 

Wind Industry Poised to Benefit from Intellectual Property Court Ruling

— August 5, 2015

Intellectual property (IP) is a double-edged sword in every industry. The marketplace rewards companies with the best innovations. In aggregate, these technology advances accelerate competitiveness and improve the offerings to the marketplace. However, companies pay princely sums and engage small armies of attorneys and experts to vigorously pursue and defend IP advantages over their peers. These battles churn out winners and losers on a regular basis and can often stifle the broader progress of an industry.

The wind power industry has had its fair share of IP battles. One of the latest fights is over so-called de-rated operation. Late July saw a U.K. court rule in favor of Siemens over ENERCON. ENERCON has been defending its IP over its Storm Control solution, which is its name for de-rated operation.

De-rated operation is the ability of a wind turbine to operate below its maximum capacity during times of high wind speed.  Traditionally, when a wind turbine reaches its threshold for maximum wind speed (around 25 meters per second), it will enter a cut-out shutdown mode to protect the turbine from damaging high winds.

The traditional process takes the electricity production offline, which can destabilize the broader power grid.  As the commercial-scale deployment of wind turbines increases, this becomes a larger concern.   To address this concern, de-rating allows a turbine to remain online, using a range of control methods from pitch control of blades to generator torque control to operate a wind turbine at below its maximum capacity.

For example, instead of a 2 MW wind turbine shutting off once it encounters its threshold cut-off wind speed parameters, it can reduce its output to 50% capacity, or 1 MW.  This ensures that the wind plant remains operational, balancing the electrical grid, and that kilowatt-hours continue to be produced instead of lost due to a full shutdown.  There are also economic inefficiencies associated with stopping and restarting wind turbines that can be avoided by running at reduced load.  This approach can also be used to continue the operation and revenue generation of a wind turbine that is experiencing high operating temperatures within the turbine drivetrain. De-rating can allow power production to continue while temperatures are reduced to acceptable levels without entirely shutting the turbine down.

ENERCON said that Siemens’ High Wind Ride Through (HWRT) infringed on ENERCON’s Storm Control system. Judge Justice Biress of the London High Court ruled the challenge invalid in favor of Siemens. Some of the technical aspects of prior art, or known technology, that bolstered Siemens’ case are well-cited at Windpower Monthly. In short, the judge accepted submitted evidence that previous technology existed–and was even obvious for de-rated operation, ramping generation down as wind speeds went up.

Making an Appeal

ENERCON says it is considering its options for appeal. In the meantime, the U.K. decision may sway how the issue is interpreted by the European Patent Office (EPO), which would have reverberations across the European market. Should the U.K. ruling stand, and the EPO meet a similar conclusion, this ruling will produce a broader benefit to the wind industry, allowing de-rated approaches from Siemens and other vendors.

ENERCON is among the most highly respected wind turbine companies, with solid performance and reputation, and it has always been on the leading edge of innovation and should be lauded for it. But if this case means more efficient and cost-effective wind technology is available for most or all wind turbine vendors, then wind plant owners, electricity consumers, and anyone with a vested interest in more clean generation are winners.

 

Clean Power Plan Ruling Presents Opportunities and Issues for States

— August 3, 2015

After a year in review, and following approximately 4 million comments and appeals by state public utilities commissions (PUCs), legislators, and special interest groups, the Obama Administration and the U.S. Environmental Protection Agency (EPA) have released a final ruling on the Clean Power Plan.

The Proposed Rule was released last June.  It included interim (2020) and long-term (2030) regulations that will be imposed state by state to decrease CO2 emissions from generation facilities.  It also requires gradual decommissioning of high-emissions facilities, increased support for low-emissions natural gas and renewable generation, and improvements in demand-side management and energy efficiency.  Speculations and protest across stakeholder groups has been colossal.

According to a paper sponsored by the Brookings Institute, the majority of comments to the plan centered upon several major issues: fairness, reliability impacts, attainability of goals, and its legal basis—many reaching past state boundaries and party lines.  Fairness concerns, held by 23 states, are largely based upon the 2012 baseline level of emissions. Many states had been proactive in the decade prior, already attacking the low-hanging fruit and therefore were being forced to implement improvements with higher marginal costs than those states that had not yet proactively addressed emissions. Reliability impacts, which differ from state to state, caution the over-dependence upon less reliable sources of power, in particular renewables.

Perhaps the most contentious pushback centered upon the attainability and legality of the program. According to the Brookings report, 36 states commented on attainability, predominantly criticizing the timeline as too short. Some states have even argued that the goals altogether are unattainable. Wyoming, for example, has an economy that is reliant upon coal production and coal-based generation. Wyoming Public Service Commission Commissioner Alan Minier, as well as other agencies in that state, has been outspoken in stating feasibility concerns surrounding the decommissioning of coal-fired plants as much as 30 years before scheduled retirement.  Similarly, although Wyoming has abundant wind resources, most of this power is exported and Wyoming would be unable to receive renewable energy credits under the plan.

The cherry on top is concerns on legality of the Clean Power Plan, particularly how it interprets the Clean Air Act (its legal basis), and that favoring gas-fired generation will encroach upon the Federal Energy Regulatory Commission’s least-cost principles in the dispatch of power. Experts have appropriately forecasted large sums in legal and lobbyist fees.

Issues and Opportunities

It’s clear that a number of issues exist within the Clean Power Plan’s approach to reducing CO2 emissions in the United States, and these do need to be addressed in order to realistically comply.  But there are also many opportunities.  In terms of creating pathways to alternative production and more efficient distribution of electricity, there has been more innovation in the energy in the past 5 years than in the previous 50. The introduction of the smart grid has invited the possibility of real-time, grid-wide networking and monitoring, enabling the use of renewable resources with very large to very small generating capacities, while ensuring reliability across the grid.

Many question the worth of derailing support for innovation in order to contest the rule. By supporting more engagement between utilities and building and industrial facility owners, city planners, and even individual homeowners to implement energy efficiency programs and integrate distributed generation, states can employ more creative and innovative approaches to compliance with the Clean Power Plan.  The possibilities are endless in terms of inviting an array of new stakeholders and developing new revenue-generating systems that can help states achieve their state goal. The question is whether the state will lend itself to innovation or litigation.

 

July Proved a Pivotal Month for Renewable Power

— August 3, 2015

The news stream started early on July 3, when the German government published a white paper presenting its proposal for power market reform known as Strommarkt 2.0, or Electricity Market 2.0. The proposed reform is focused around three ideas: the energy supply must be reliable, it must be environmentally friendly, and it must be cost-effective—even with a growing share of wind and solar power.

To achieve these focus points, the white paper proposed 20 pillars to support the new market. The most important are that the price is set by a free market, there is constant monitoring of the security of supply, a capacity reserve (but not a capacity market) will be introduced, and the power market will evolve to be balanced.

While the proposal does not affect renewables directly (Germany has been actively tweaking its incentives in the last 2 years to reduce impact on electricity bills), it does introduce the flexibility necessary to allow further growth of renewables in the country, which is a must if the country wants to meet its 80% renewables target in 2015.

More News

A couple weeks later, on July 17, the European Union (EU) Commission proposed a new regulatory package that set the stepping stones of its EU strategy. While most of the proposal is geared toward empowering consumers so they can make better decisions affecting their energy consumption, it also advocates for a new single-market design at the European level. This design will add flexibility to the system to facilitate the expansion of renewables, promote cross-border competition, allow decentralized electricity generation (including for self-consumption), and support the emergence of innovative energy service companies.

And a few days later, on July 22, the U.K. Department of Energy and Climate Change (DECC) announced a revamp of its solar and biomass policy support, ending solar feed-in tariffs for projects under 5 MW (projects above 5 MW were not eligible). DECC also said that it will remove subsidies that had been guaranteed to new biomass conversions and co-firing projects, including existing plants that were intended to burn higher shares of biomass. Finally, DECC announced it would delay new Contract for Difference tenders indefinitely.

Meanwhile, France announced a significant shift in its energy policy. On July 23, the French National Assembly approved its energy transition law. In it, the country announced that it will reduce its reliance on nuclear energy to 50% of its generated power by 2025, from 75% today, capping its nuclear power installed capacity at 63.2 GW. The country also set the share of renewable energy at 32% of its demand. In addition, France introduced a long-term target for carbon tax. Currently standing at €14.50 ($15.90) per tonne, this tax will increase to €22 ($24) in 2016, then to €56 ($62) in 2020, rising to €100 ($110) in 2030.

Overall, with their new intents, the EU, Germany, and France seem settled in their way forward, while the United Kingdom’s energy  policy is consistent at being inconsistent. After all, this is the third time it has changed policies in about 5 years.

A couple weeks later, on July 17, the European Union (EU) Commission proposed a new regulatory package that set the stepping stones of its EU strategy. While most of the proposal is geared toward empowering consumers so they can make better decisions affecting their energy consumption, it also advocates for a new single-market design at the European level. This design will add flexibility to the system to facilitate the expansion of renewables, promote cross-border competition, allow decentralized electricity generation (including for self-consumption), and support the emergence of innovative energy service companies.

 

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Electric Vehicles, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Smart Grid Practice, Smart Transportation Practice, Smart Transportation Program, Utility Innovations

By Author


{"userID":"","pageName":"Renewable Energy","path":"\/tag\/renewable-energy","date":"9\/5\/2015"}