Tuesday, February 19, 2013

German eyes turn to grid charges that capture more value from embedded, mainly solar, generators

A new post to the German Energy Blog indicates the fairness of charging for connection to the grid by consumption of electricity delivered over the grid is increasingly problematic:
... it was necessary to review the grid charges system with regard to investment costs into the grids that were avoided avoided due to decentralised input into the grids and an equal payment of grid charges by all grid users, BNetzA and vzbz said in their joint press release. Every user who relied on the security and quality of the grids had to contribute evenly. With a growing amount of decentralised generation this was, however, not the case anymore, since grid charges did not have to be paid for self-consumed electricity and a decentralised input into the grids."
The topic communicated in the German Energy Blog was covered by economist Severin Borenstein in "The Private and Public Economics of Renewable Electricity Generation"

Locating electricity generation at the customer site, known as “distributed generation,” engenders the most controversy in locational valuation. Retail prices are a very poor guide to locational value, because they include significant fixed cost recovery (for instance, the fixed costs of local distribution networks) and they reflect little or none of the locational (or time) variation in wholesale power purchase or production cost. At one extreme, some advocates of distributed solar and wind generation argue that customers should not only be able to reduce their power bills to zero by generating as much power over a billing period as they consume, they should be paid the retail rate by the utility for any net power they contribute to the system. At the other extreme, some grid engineers argue that intermittent distributed generation not only doesn’t reduce local distribution costs much at all—so should be compensated no more than the wholesale price of power—the intermittent nature of the power and the reverse flow from customers increases the stress on distribution transformers and increases the frequency of repairs. At the heart of this conflict is an internal inconsistency in the utility revenue model: local electricity distribution service is a regulated, largely fi\xed-cost, business, but costs are recovered primarily through charges that vary with the quantity of electricity
consumed. In the United States, wholesale electricity costs average only about 50 to 75 percent of residential retail electricity bills; most of the rest represents costs that don’t vary with marginal electricity consumption.
Residential solar photovoltaic generation has been at the center of this debate.  Residential solar does offer greater value than suggested by its high levelized cost—because it produces disproportionately at times of high demand, reduces transmission investment, and avoids the small percentage of power that is dissipated
as heat when it is sent through the transmission and distribution lines from a distant generator (Borenstein 2008a). Nonetheless, retail rates don’t accurately reflect the social value of distributed solar generation. With distributed generation, a significant share of the savings customers see in their electricity bills would have gone to pay the utility’s fixed costs. These costs change very little, even in the long run, when customers generate some of their own power.
I first cited Borenstein's paper here.

Ontario's approach, which is to enforce separate grid connection of micro-FIT solar installations from the residential metering, is the worst of all worlds - it is essentially a vote-buying scheme that avoids dealing with the complex issues that need to be addressed, and simply serves to transfer wealth from densely populated ratepayers to wealthier landowners (as the feed-in tariff model has been doing in Germany).

1 comment:

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