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Can electric cars save utilities

Can Electric Cars Save Utilities?

Over the past decade, we as a society have become much more energy efficient; we have energy efficient light bulbs, our appliances require less watts, and we can even install solar panels onto our homes to generate our own energy. Undoubtedly, these are great steps to take if we want to preserve natural resources and save some capital for other expenses like shopping or groceries. But is there a downside to someone?

As mentioned in a previous blog, the utility death spiral is a reality that could be all too imminent. Hawaii and some parts of Europe are already seeing the foreboding signs of a utility crisis. A result of declining prices and rising costs, utility companies are left desperate for new load growth. Utilities have been threatened by numerous factors like LED bulbs, on-site solar, and energy efficient appliances, which cause significant declines in utility sales. If revenue falls too quickly, then utilities become liable to start in free-fall, much like what happened in Germany where utilities lost half a trillion euros in their markets. Innovation and progressive change are good, but pace is pertinent in their execution. 

Another haunting reality for utilities is the void of commonly found, high-demand appliances in consumer facilities. Decades have passed since the refrigerator or heating and A/C units, all of which require considerable amounts of energy to operate, have been taken into our homes and commercial facilities. When these appliances were first introduced, utilities saw a major increase of demand. But that was long ago, and we have since become a much more energy efficient society, especially with largely encouraged renewable energy sectors.

However, quick innovation can involve shifts in losses and benefits from one industry to another. So if the electric car companies can take business away from the gigantic petroleum energy by releasing more electric cars (EV’s), then everybody wins. Well, everybody except the petroleum industry, but that’s another discussion.

Can a Shift to Electric Cars Save Utilities?

The answer to this question is a bit complicated. The Energy Information Administration (EIA) states that transportation energy is the second largest consumer of energy in the U.S, right behind electric power generation. However, a predictable 93% of that power comes from petroleum products. A recent post by the Edison Electric Institute (EEI) claims that EV’s could provide the load growth that utility companies so desperately need. EEI published a post on Transportation Electrification back in 2014. This post details how EV’s could benefit all parties involved, society included, if we moved from petroleum powered vehicles to battery powered ones.

Between 2007 and 2013, retail sales of electricity in the United States across all sectors dropped 2%. In addition, the American Society of Civil Engineers gave America’s energy infrastructure a D+ grade in their 2013 report card and estimated a 3.6 trillion dollar investment needed by 2020.

–Transportation Electrification, EEI

However, there are some foreseeable problems with a large scale shift to EV’s. One being that peak demand times could be significantly increased by people charging their EV’s. From what we notice today, EV owners typically charge their vehicles when they get home from work. Makes sense, right? You get home, plug in your car, and go inside to watch football and chill out for a while. The only issue with that is that utilities already see peak load times around these hours, so adding even more demand during these times could prove costly and difficult for utilities to handle. Some utilities, including Alabama Power, are hoping to fight this by offering qualifying EV owners rate incentives if they charge their vehicles in off-peak hours, which, if done correctly, could actually benefit grid stability and efficiency.

“Alabama Power offers an optional rate rider for customers with a Plug-in electric vehicle (PEV). The rate rider allows customers to charge their electric vehicle at a discounted rate during off-peak hours of 9 p.m. to 5 a.m. To qualify for eligibility, a customer must own a PEV that is manufactured primarily for use on public streets, roads, and highways. Electric scooters, electric bicycles, golf carts, and motorized electric wheelchairs are not included.”

California’s Shift

EEI claims that a large scale electric transportation shift would benefit the electric vehicle industry, the consumer, the environment, and especially utilities who need to see a significant rise in load growth. As we know, electric vehicles have significantly lower carbon emissions that damage the atmosphere, save the consumer money on gas, and would cause a considerable rise in electric demand for utility companies.

California is already making notable efforts in regards to filling it’s streets with electric vehicles. The California Public Utilities Commission (CPUC) received several proposals from different companies who wish to accomplish different goals in expanding their fleets to exclusively EV’s and installing thousands of new EV charging stations. The proposals are filed under California’s Zero-Emission Vehicle Program that plans to propagate a utility infrastructure to support 1 million Ev’s by 2020. The state hit 250,000 in late 2016.

The proposals approximate to 1 billion dollars in funding. If granted, tens of thousands of charging stations would be installed in California airports, ports, warehouses, and residencies. The Pacific Gas and Electric Company (PG&E) is seeking $253 million for three efforts: “expanding electrification for fleets with medium- and heavy-duty vehicles, responding to consumer demand for fast-charging stations, and exploring new uses for vehicle electrification through five, one-year projects.”

Vehicle Electrification and Alabama

Alabama faces one big problem with the electrification of its transportation industry: charging. Alabama is all but void of any charging facilities that EV’s so desperately need. If utilities are truly depending on EV’s for the load growth that they need, then charging station projects would have to come soon.

Additionally, Alabama needs to take a hard look at its policy in the transportation policy to encourage growth in electric transportation. These changes could be everything from building codes at the local level that require installation of chargers for large destinations to the Alabama Department of Environmental Management (ADEM) using Volkswagen settlement money to build the infrastructure for heavy duty trucks.

As you can see from California’s example, where energy efficiency and renewables have stunted electric demand growth, utilities are making aggressive moves to electrify transportation. Regulators are working with electric utilities to build the shared infrastructure while keep the market open to private sector innovations. We hope Alabama will follow suit.

Probing Residential Demand Charges

What are Demand Charge Rates?

We have become very accustomed to the electric bill we receive every month. This bill has different charges like sanitation, tax, etc. But the largest charge is very likely to be the electric service charge. Put simply, this charge is what the utility company charges to meet your demand, or the amount of power your home consumes, during that monthly billing period. This is what is known as a standard consumption rate, which could be either fixed or variable. But you probably paid a fixed rate, which means that you pay the same rate for your energy regardless of how much or when you need it.

Related: Understanding Your Utility Bill

Fixed rates have been used for a very long time for residential consumers, and are probably the most common rate structure around. However, a different billing policy exists for commercial consumers, one called demand charge rates (DC’s). DC’s are a completely different charge that commercial and industrial sectors have to pay for, along with their consumption rates. A DC can be defined as an extra cost that a consumer has to pay for their maximum demand over a billing period, and can make up around 30% of a utility bill. So, imagine not only paying for the energy you use, but paying more the maximum used at any one time. Kinda lame, right?

Another way to think of this is like turning everything in your house on at the same time. That’s a lot of juice! And the utility will charge for this because they still have to supply you even when everyone is turning on everything at once.

(If you want to learn more about rate design, then check out our article on the ins and outs of rate design! )

Are Demand Charge Necessary?

Demand charges are designed to lower the cost of grid operation during peak hours of demand. DC’s supposedly help utility companies offset the cost of meeting high peaks of demand, which they have to do at all times, and that can be expensive. Utilities have to meet demand 24/7, and to do so they have to operate a lot of expensive equipment and generation plants.

Utilities argue that DC’s help cover the cost of maintenance and construction of wires, transformers, power plants, substation, etc. DC’s also encourage consumers to have a more consistent demand, with smaller demand peaks offset by spreading demand over a larger period of time.

However, charging the consumer more just because they have a peak demand during any given time is not always the best solution. For example, a business could reach its peak demand in system off-peak hours where the total demand on the grid is considerably less significant than system peak demand hours. This means that a business has to pay more for their energy although they are not costing the utility any more to meet their demand.

You can read our article on the Duck Curve if you want to learn more about demand, peak hour efficiency, and the costs of meeting demand during peak hours!

Residential Integration

DC’s have been around for decades in the industrial and commercial worlds respectively, until recently.  The Arizona Public Service (APS) attempted to integrate their residential customers into their Demand Charge policies back in 2016, but was met with frustration and from residential costumers. APS and and regulators were swarmed with public backlash in the form of upset calls and even protest.

The problem with integrating DC’s into residential districts lies in that individual residential homes, even in their peak demand, do not often put adequate stress on the grid to justify charging more. This stress point usually occurs only a few times per year. Furthermore, residential consumers are not used to being charged this way and frankly many do not understand what the charge is much less how to manage it. Simply put, it requires action by the consumer to manage.

Residential demands and peaks are also very similar. For the most part, we all wake up, shower, and use appliances before we leave for work/school, and we turn on the air conditioner when we return. Commercial and industrial facilities, however, tend to have much more sporadic and instantaneous peaks and demands throughout their billing cycles, especially those facilities operate on a 24 hour basis. Not to mention that these facilities require much larger amounts of power than any given residential home.

APS also made errors in giving proper effort to outreach to consumers of what DC’s really are. It takes a long time, sometime years, to adequately inform every consumer of policy changes. Some people don’t watch TV or have a smartphone, and some do not even have an adequate mailing address. So conducting proper outreach is difficult, but absolutely required.

It is doubtful that APS will be the only utility to attempt to push DC’s on their residential consumers.

A Better Alternative

A third rate design currently exists in the world of energy, one that we believe to be a healthier, more efficient one. This rate is called Time of Use (TOU). This system is more complicated than the standard consumption rate, so let’s break it down.

Related: 6 Reasons Time of Use Rates Are the Best Option

TOU rate policies work by monitoring energy use during peak demand hours. Peak hours vary slightly from grid to grid, but utilities generally see a big ramp in demand in the morning hours (approximately 6AM-9AM) followed by another ramp that evening (approximately 6PM-10PM).  Consumers under TOU rates would be charged more for using energy during these hours. But, unlike demand charges, time of use rates only apply if you use energy during hours where the grid is at its most stressed, and not just whenever your home meets its own peak demand. Consumers under TOU’s are generally charged less per kWh in the off-peak hours than consumers who are billed through the standard fixed rates. TOU’s give business and homeowners alike the capability to save money by reducing stress on the system by lowering their demand peaks, which in turn saves money for the utilities, as well. 

But we like TOU’s for a number of reasons. One being that it gives you the ability and encouragement to work around times of peak demand, and you can even save money by doing so. And who doesn’t like saving money? But it does take some amount of work on the consumer’s part to do. If you usually wash clothes in a dryer and washer or keep the A/C or heat on during peak hours, then try and move those times of usage to non-peak hours.

Furthermore, you can install automatic timers on your water heater and other equipment to only make it run during off peak hours. (Trust us, you’ll still have plenty of hot water). Also, and we love this one, you could install solar panels into your home to lower your demand even more! This would be especially helpful if the the highest charges are during the day with the sun is plentiful. TOUs and committing to these changes could save you hundreds of dollars per year on your electric bills. It’s also worth mentioning that a true TOU system would leave out any unwarranted and extraneous fees. You pay for the energy you consume, when you consume it, period.

TOU’s can not only help you save money, but they also provide real help to the grid. If implemented properly, TOU’s will reflect times when the grid is at it’s highest demand. These times are much more costly for utilities to meet as they have to operate a plethora of expensive equipment to do so. Operation of less expensive equipment = money saved for utilities and you.

Our own Tennessee Valley Authority is proposing TOU’s for utility companies such as Huntsville Utilities, but it’s unknown if they have plans to move TOU’s to their other consumers.

Energy Alabama Signs On to Comments Opposing TVA’s NEPA Rule Changes

Energy Alabama, and a host of energy and conservation groups, signed on to comments prepared by the Southern Environmental Law Center opposing changes to TVA’s implementing regulations for the National Environmental Policy Act (“NEPA”).

Energy Alabama is extremely concerned that TVA’s proposed changes undermine transparency, stifle public involvement in TVA’s decisions, and bestow upon TVA almost boundless discretion to decide whether and how it must review the effects of its activities on the people and environment throughout its seven-state service territory, which includes nearly all of Tennessee, and portions of Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Virginia.

To view the full comments, please visit: https://alcse.org/wp-content/uploads/2017/09/2017-09-06-Comment-on-TVA-Proposed-NEPA-Rule.pdf

What is a Value-of-Solar Tariff?

A value-of-solar tariff, or VOST, is a rate design policy that gives customers with solar panels credit for the electricity they generate at a specific price. The credit is then applied to the customer’s utility bill. A VOST usually clarifies how much energy is sold from the customer to utility company and from the utility company to customer; it also determines at what rate the energy is valued. Value-of-solar tariffs are generally viewed as unfair and for two main reasons: the value of the tariff is lower than market rate in most areas and the benefits of VOSTs aren’t broadly advertised. But VOSTs don’t HAVE to be unfair.

As of right now, there aren’t many markets that have fair compensation for solar in the form of VOSTs. The two main places that are under the current implementation of value-of-solar tariffs, Minnesota and Austin, Texas, purchase all of their energy at the utility’s retail rate and pay out a separate VOS rate in dollars per kilowatt hour. In Minnesota, the VOST rate is about $0.145 per kilowatt-hour which is above the residential retail electricity rate of $0.115 per kilowatt-hour. This rate means that for every kilowatt-hour a solar user produces, the user doesn’t have to pay for a kilowatt-hour and they save a little on the electricity they don’t produce but still use. Why would a state or utility pay higher than retail? Because through a VOST process, IF the total value of solar energy is taken into account, there may be cases where it is in fact worth more than retail.  This type of VOST is very customer friendly to encourage the residents of Minnesota to begin producing solar energy themselves; unfortunately, outside of Austin, Texas, the same cannot be said for other states. One of the reasons for less than market rate compensation is the cost of providing the VOST in the first place or other services that utilities must provide for you to sell to them.

What is the unseen value of a VOST?

An end financial value of a VOST is made up of many subparts. For example, some value components include: avoided cost (money saved by the utility from not having to buy additional fuel for the power plant), environmental (the value of reducing harm to the environment and its subsequent cleanup), and transmission system impact (less strain on power lines due to generation being located closer to where it is being used), among others.

For a user to successfully produce and sell back solar energy to a utility company, they have to use the grid. Even if a customer produces the same amount of energy as they use, there are still costs to selling the energy back and for energy used from the grid when solar is not producing. When paying out for solar, utilities have to consider the cost of business (grid maintenance, labor, parts, etc.), which takes a portion out of the amount the customer receives. The need utilities to receive compensation for their services in a VOST to maintain the grid cannot be overlooked.

The second reason value-of-solar tariffs can get a bad reputation is customer lack of knowledge about its benefits. Utilities can better understand customer load, timing, and volume because a VOST separates electricity generated by the consumer from electricity consumed. This is valuable information that utilities can use to better predict when peak times might occur and how much electricity they’re actually using. However, customers may not understand all the variables that make up a VOST or why they are there.

Another reason is how customers receive compensation based on utility-specific benefits and costs of their electricity generation, instead of fixed retail rates that may span many regions. Customers are able to select what VOST is most beneficial to them depending on their energy production and use, as opposed to going with the rate of their region no matter the circumstances.

Value-of-solar tariffs are one of several viable options for solar users to sell back their solar energy, and there are both good (Minnesota and Austin, Texas) and bad (almost everywhere else) ways of providing it to customers. One important aspect that cannot be overlooked is how a VOST is beneficial to the energy system (e.g. the grid) as a whole. With a true integrated value, a VOST can provide the grid with much needed support and gives utilities valuable information; but as it becomes more widespread, concrete worth needs to be given to the value provided from things like environmental and avoided energy costs. VOST has a bright future if implemented correctly, and as more states follow Minnesota’s example, solar will continue to grow more valuable.

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.
Perfect Utility Rate Design

The Ins and Outs of Electricity Rate Design

Electricity rate design has the power to completely alter the energy sector, for better or worse. The world of electricity rate design can be a confusing one, so before we get into which rate design would be most beneficial for you and the energy sector (that’s for a later blog post!), let us first define and explore three of the main types of rate designs.

Fixed Charges and Consumption Charges – The current system for billing electricity for most utilities across the country, this rate design charges fixed fees in tandem with a usage bill and is most common with residential consumers. Fixed charges never change from month to month (as the name implies), as they are there as a result of your connection to the grid. Recently, utility companies across the country have been advocating for significant fixed charge increases. In theory, a fixed charge is there to compensate the utility for the fixed portion of their costs as a result of having you as a customer (for instance, the cost to bill you and read your meter).

Related: Are fixed utility charges bad for consumers?

Time of Use – This system is decidedly more complicated than the previous one, and would require some work on the part of you, the consumer. The idea is simple: the cost of using electricity would change according to the time of day (for instance, customers would be charged higher rates for using electricity during specified peak demand times).

Figure 1: An example of a suggested TOU rate for summer months. Source: www.pge.com

The execution of Time of Use (TOU) rates (such as advocacy and ensuring customer understanding) is where the system becomes more complicated. States such as California and Massachusetts have already adopted a TOU rate design, and our own Tennessee Valley Authority has also proposed making the transition to TOU rates. Additionally, TOU rates are already available in most states on a voluntary basis. At its most basic, TOU rates provide price signals to customers to encourage them to use when rates are low and conserve when rates are high.

Related: 6 Reasons Why Time of Use Rates Are the Best Option

Peak Demand Charges – In many states and especially for commercial customers, electricity use is billed in two ways by the utility: based on consumption, that is, how much electricity you actually used in a given period, and peak demand, or the highest capacity required during that billing period. A simple way to think about this is with an analogy: the odometer in your car would represent the “consumption,” and the fastest speed you traveled during that period would be the “peak demand.” Your car needs to be able to last for a long time (high mileage) but also may need to go fast from time to time (of course, if you drive a Tesla Model S, that’s all the time! But we digress…). In the case of this electricity rate design, you would be charged for both consumption and peak demand, and oftentimes these two charges appear as one combined charge.

The main idea behind peak demand charges is that they provide customers with price signals to encourage them not to make large, instantaneous demands on the systems but instead to spread their usage out over the day more smoothly. Depending on the rate structure in a given area, and your habits, demand charges can constitute up to 30% of an electricity bill.

Related: Probing Residential Demand Charges