Perfect Utility Rate Design

6 Reasons Time of Use Rates Are the Best Option

Previously we discussed the pros and cons of the available utility use rates. In that post we mentioned that while none of the options are perfect we do have a favorite, so here’s

6 Reasons Time of Use Rates Are The Best Option

 

  1. Time of Use (TOU) Rates will lower your bill.

With some simple adjustments to your electricity use habits, you would save a significant amount of money with TOU rates versus standard consumption rates.

  1. A true Time of Use Rate system wouldn’t charge any unwarranted fees.

Utilities are notorious for trying to increase fixed charges and fees. With a true TOU rate, you are only charged for the amount of electricity you consumed (based on when you used it) with no extraneous charges.

  1. Time of Use Rates rates encourage the use of solar.

The current system for most utilities across the country charges a “fixed rate,” meaning you are charged that rate regardless of the amount of electricity you use. Without these fixed charges, TOU rates can encourage the use of solar, especially if the peak rates are during daylight hours.

  1. Time of Use Rates can be available to everybody, whether you’re a business owner or a resident.

Additionally, in most states, TOU rates are already available on a voluntary basis.

  1. Time of Use Rates are good for the consumer and the utility.

If implemented properly, TOU rates are directly related to when the system (e.g., the grid) experiences the most cost. By changing your behaviors, you’re not only saving money but also helping the entire system.

  1. There’s only one downside.

Many don’t know of – or have not seen the benefits of – TOU rates. As such, consumer education would be the greatest barrier for getting TOU rates off the ground. Consumers would need to be educated on how they can actually save money with TOU rates – because, unfortunately, you would not be able to switch to TOU rates and have your bill magically decrease. Saving money with TOU rates would require some work on the part of the consumer. Here are a few things that you would have to do to save more money with TOU rates:

  • Plug devices such as computers, televisions, game
  • consoles, and printers into power strips and turn off the switch when these devices are not in use during peak demand hours.
  • Program your AC/heater to not run as much during peak hours.
  • Use your washer and dryer during non-peak times.
  • Install automatic timers to only run your water heater during non-peak times (trust us, you’ll still have plenty of hot water).
  • Use solar during peak demand hours!

With some careful alteration of your electricity habits, most consumers would save hundreds of dollars a year on electricity with TOU rates compared to standard consumption charges. TOU rates are good for utilities and your electricity bill – and all that’s needed is to get the word out.

Perfect Utility Rate Design

Does a Perfect Rate Design Exist?

Does a Perfect Utility Rate Design Exist?

The simple answer: no. There is no perfect rate design, as there are up and downsides to each. However, we believe there is a best option, and we’ll talk about that in a later blog post. For now, let us analyze the positives and negatives of each of the three main types of rate designs. If you need a refresher on the often-confusing world of rate design, check out our blog post on the topic.

Fixed Charges and Consumption Charges – In many ways, this rate design seems like it would be the most ideal, especially for residential consumers. Your monthly charge would consist of a fixed charge, the charge of being connected to the utility, and a consumption charge based on how much electricity you used during the billing period. Seems great, right? You pay for electricity you use, along with a fixed charge, and don’t pay for electricity you didn’t use. Simple! Well, as it turns out, the word “fixed” is not so fixed… It’s really a relative term.

Recently, Alabama Power has started a “pilot program” that exponentially hikes the fixed charge rate (up to 400 percent!). For now, the rate increase is voluntary and experimental, but it forebodes of future substantial rate inflation. Even now, many utilities across the country are actively trying to increase fixed rates. Fixed charges are generally thought to be bad for consumers because they discourage energy efficiency and renewable energy and are liable to increase without warning (check out our blog post on fixed charges!).

Time of Use (TOU) – Most simply, TOU rates charge customers prices based on the time of day in which the energy is consumed. When the grid is congested, the prices goes up, and when there is plenty of excess electricity available, the prices goes down. This system could encourage energy conservation and efficiency by motivating customers to use electricity outside of peak demand times and to conserve it inside peak demand times. Additionally, no fixed charge means more freedom and incentive to conserve energy. The only downside to this system resides in the amount of customer education it would require, such as learning how to use other means of energy consumption (like solar!) or simply remembering not to consume as much energy during the specified times. Most customers are not used to being charged this way and would need time to adjust.

Peak Demand Charges – Because of the hiked charge on peak usages, this rate design encourages customers to not make large, instantaneous demands on the system, no matter the time of day. This rate design is typically reserved for commercial consumers where it is oftentimes necessary or unavoidable to use large amounts of electricity at one time. Of course, there are ways to somewhat decrease high peak demand charges (such as installing solar if you have a daytime peak or spacing out electricity use more smoothly), but the rate design is still imperfect. Peak demand charges, then, can be a good, sensible idea but tend to be impractical in the sense that each customer’s individual peak isn’t always as necessary as the system’s overall needs.

Choosing the right rate design is difficult; each one presents its own challenge to overcome. The question to ask when pondering the plethora of rate design options is “Which one is best, not easiest, for the energy sector?” We’ll leave you with that hint until the final blog post in this series, where we will explain in detail why we believe a certain rate design is the best.

Solar Shingles, Are They Really Worth It?

Photo courtesy of Tesla

Tesla has done it again. The sexy, cutting-edge, tech company has come out with a product called Solar Tiles, also known as Solar Shingles. This revolutionary product will pave the way for sustainable energy to become the next home-design trend. The 8.65”x14” tiles currently come in two different styles, textured and smooth; the website also shows the two new designs being released next year. How does it work? Glad you asked… The solar tiles are strategically placed all over a home’s roof to maximize sun exposure. The light from the sun is converted into power that is then transported into a Powerwall, or assumedly any other battery system, where the surplus energy is stored. The energy is stored in the Powerwall to guarantee uninterrupted electricity even during bad weather.

Photo courtesy of Tesla

The nice thing about Tesla is that their website allows you to input your address, square-footage, and current electricity bill amount. They use all that information to calculate the percentage of solar tiles you would need, how much it will cost (whether you pay for it all upfront or you finance it), and how much it will save you per month and over the period of 30 years. Now, you may be wondering, “if I only need 40% of my roof covered in solar tiles won’t you be able to notice a difference in tiles?” Tesla has already thought of that. The roof will be made with the same style as whatever tile you select and the remaining 60% of the roof would be covered in tempered glass tiles. Now you’re also probably thinking, “glass tiles don’t sound like they have a long lifespan”. Once again, Tesla is one step ahead of us. These tiles come with a lifetime warranty, and they have proven to be 3 times stronger than standard glass tiles. Tesla’s website has a video of a 2-inch hailstone being thrown at the tiles at 100mph, the other tiles break instantly and the Solar Tile is completely unharmed.

Photo courtesy of Tesla

Now, as all Tesla products are pricey, this one is no different. I can use my home as an example. It’s 2 stories, 3,500 square feet, 5,000 roof square footage, and has an average electricity bill of $280. The overall price for my home would be $132,500, which includes 3 Powerwalls installed in my home and 50% of my roof covered in solar tiles. However, Tesla has it set up to where, not only do you receive a tax credit, but you can finance through your monthly home mortgage payment. For my house, I would receive a $36,900 tax credit and $490 monthly loan payment. If you’re depressed because of the sticker price, I’ll share with you the calculator’s savings estimation. I would save $259 a month over 30 years and $93,300 total for 30 years. Overall, I would most likely break even, considering the cost and the savings put together.

Compare that to a standard solar array, to completely offset my usage it would likely cost around $40,000 before tax incentives. Also keep in mind that because my usage is a little higher than average, I’m having to install a system that is a good bit larger than the average installation in North Alabama.

So, are Solar Tiles worth it? We’re voting no. But only for now. And only because of the price. If Tesla’s performance from the introduction of the Model S to the Model 3 is any indication, Solar Tiles could be a harbinger for much cheaper, mass market products.

The Importance of Reducing Solar Soft Costs

What are solar soft costs? Soft costs are any costs, fees, or taxes that are included with a product after material and labor. While solar energy is worthwhile, thanks to the long term savings and the benefits for the environment, many potential users are hesitant at first due to the initial cost. A significant portion of the heavy sticker price is the “extra” added when taking soft costs into account.

Solar is becoming more prevalent in America, and many users are beginning to see their investment come to fruition. Unfortunately, many potential users are halted before they get started; so let’s look at some of the soft costs and how they could be reduced.

Courtesy of U.S. Department of Energy

As the graph shows, a massive 64% of the cost of solar is due to soft costs. Costs like permitting fees, interconnection labor, installation labor, and installer profit are significant portions of the soft costs, but are also necessary. The solar system needs to be approved by the city (permitting fee), connected to the grid (interconnection labor), installed (installation labor), and the company selling it needs to make some profit to stay open and continue selling their product (installer profit). However, most of the other costs could be trimmed down so there isn’t as much of a cost for each one.

The other portions of soft cost: sales tax, transaction costs, supply chain costs, indirect corporate costs, and customer acquisition, CAN be reduced, sometimes to virtually nothing. Some states actually pay the solar user, through stipends or other incentives, to install rather than charge sales tax; therefore, sales tax could be done away with or reworked so the user gets that cost back. In fact, some states like Florida, do not charge sales tax on renewable energy, effectively eliminating this soft cost.

Transaction costs are costs that come from a third-party lender when the buyer needs a loan and could be reduced to a lower rate. We find that buyers need to be aware of the hidden fees and transactions costs that can quickly add significant cost to their installation. Some transaction costs are unavoidable and more than fair. After all, no one is going to loan you money at 0% interest. That being said, be aware of who is charging what fees and where they’re being charged in the process. Supply chain costs are from the transporting and housing of solar units from the company to the buyer. Better supply chain management and cooperative buying can help reduce this cost.

Lastly, and probably most interestingly, customer acquisition is the cost for the solar installer to reach out and connect its potential customers. This cost is effectively sales and marketing; and while it’s a necessary function, you can immediately see the issue. If hundreds of people contact their local solar installer only to be turned away because of bad site conditions, not being able to finance the system, or any number of reasons, the solar contractor has spent money on a customer that ultimately cannot buy its product. That means this cost must be charged to the next customer who CAN purchase the system. The U.S. Department of Energy and many startups around the country are developing tools explicitly designed to attack this problem. The more information at the fingertips of consumers and contractors helps reduce the amount of time spent on projects that just simply could never be built.

A good way to think of solar installation with lower soft costs is to merely look overseas. Germany is one example of solar installation working without high soft costs and their wide user base is proof it’s effective. By making solar more available (cheaper), Germany has a much bigger user base than the United States and they see more users every year. Although the process of buying solar is different in Germany, they immediately provide savings by getting rid of most soft costs from the start.

Let’s not handicap solar right out of the gate. By working to significantly reduce soft costs, we can make solar more affordable for everyday Alabamians. Quite literally, giving them the power back.

Understanding Public Utility Regulatory Policies Act of 1978 (PURPA)

Defining PURPA

Passed in 1978 as one part of the National Energy Act, the Public Utility Regulatory Policies act (PURPA), provided a major benefit to the production and integration of renewable energy.

The National Energy Act was conceived in reaction to the energy crisis of 1973. It contained a plethora of legislation that would aim to drastically cut the demand for imported oil. One such act, now today as PURPA, would give manufacturers of renewable energy a toe-hold in the door to large scale energy manufacturing and deployment, which is always appreciated. PURPA was meant to promote better energy conservation, domestic power production, and renewable energy construction and integration.

Prior to PURPA, electric utilities were structured in what is known as vertical monopolies, which basically means that they control all aspects of energy supply: the generation, distribution and control were all controlled by one company, which was originally thought to be more effective method of energy maintenance. Well, that is until PURPA was introduced and broke that model and would make it much easier for other energy companies to integrate into the grid.

PURPA also eliminated “rate structure” promotions offered by utilities. Rate structure decreased the cost of electricity by kWh with increasing usage, with smaller increments included, as well.

PURPA’s Role in Renewable Energy

PURPA enabled non-utility generators (NUG’s) to generate and attach energy to the energy grid by breaking the monopolies that held control of it. Not only that, but PURPA also forced utility companies to purchase energy from other energy producers, like producers of renewable energy, if that cost was less than their avoided cost, or the cost of producing the extra energy on their own and delivering it to the consumer. As a result, more and more cogeneration plants were built and implemented into the system. These plants were required by law to harness thermal energy in the form of steam, which would otherwise be wasted if energy alone was produced.

Controversy with PURPA

PURPA was not as big of an issue back in the 1970’s. However, more and more utility providers are having issues with PURPA. Specifically, having to accept renewable energy providers, specifically providers of solar energy, due to the fact that solar energy has become gradually more affordable and viable in energy production over the last few years.

One such controversy has erupted in Montana where the state’s largest investor-owned utility company, known as NorthWestern Energy, filed a claim with the state’s public service commission stating that the current rates of qualified providers (QF’s), which were stalled at $66 per mega-watt hour, was out of date as of 2013. The commission granted the proposal and altered the terms of which QF’s that provided between 100 kilowatts and 3 megawatts received the current avoided cost rate. None of the projects met the criteria.

The Federal Energy Regulatory Commission (FERC) declared that the Montana State Commission had ruled in a way that was inconsistent with PURPA. However, as of this writing, they have not made any movements to rectify the commissions movement, which begs the question as to how seriously PURPA is being enforced.

In another instance, a North Carolina based utility company, Duke Energy, is currently backing a bill that would bring all renewable energy construction to a slow crawl. Introduced by Rep. Dean Arp (R-Union), House bill 909 is encouraging the once halted negotiations between Duke Energy, renewable energy advocates, and other PURPA stakeholders.

The bill would remove all North Carolina renewable energy projects from the umbrella of PURPA, and would throw those projects into a bidding process lead by Duke Energy. The bidding would have a ceiling of a predicted 400 megawatts.

“This bill would crush renewables in every sense, except perhaps in agriculture,” said Chris Carmody, the executive director of the North Carolina Clean Energy Business Alliance. You can read more on the North Carolina controversy here!

But Montana and North Carolina are not the only states seeing conflict with PURPA. Utah and Oregon utilities are starting to call for new contract lengths, rates, and other changes. Solar companies have since stated that the proposed changes would make it impossible to finance solar projects. It is not farsighted to say that further controversy could emerge in the near future.

New Legislation Affecting PURPA

PURPA is seeing a steady decline in significance as most of the contracts signed in the 1980’s are coming to an end. Furthermore, PURPA was amended in 2005 under the Energy Policy Act of 2005. The amendments to PURPA begin on Section E, subsection 1251 through 1254 of the Energy Policy act. Here is a short list of what amendments were made:

  • Each electric utility service shall make available upon request net metering services to any electric consumer the utility serves
  • Each electric utility shall develop a plan to minimize dependence on 1 fuel source and to ensure that the electric energy it sells to consumers is generated using a diverse range of fuels and technologies, including renewable technologies.
  • Each electric utility shall develop and implement a 10-year plan to increase the efficiency of its fossil fuel generation.