Figure 1 – Characteristics of 16 distributed generation utilities in the US (Source: “Quantifying net energy metering subsidies,” from the Electricity Journal; there may be a pay barrier for the full PDF article)
Last week’s blog started from the broader perspective of our personal decisions and how we ensure our energy supply without damaging the environment that we live in. I started to address this issue in response to a meeting that my university (CUNY) organized to help solar and storage installers do their work. The title of this conference was “2024 NYC Solar + Storage Installer Workshop” and it was a continuation of last year’s conference under the same name (2023 instead of ’24). That conference (given via Zoom) was targeted at “installers” but all of us count as decision-makers about installation. If you try to install solar cells yourself, you become an installer. A few days after that meeting, CCNY (City College of New York), a senior college in CUNY, organized a related meeting, this time in person, titled “NYC Future Energy” that I attended as well. That meeting is summarized here. As I proceed, I will refer to the first meeting as the installers meeting and to the second as the CCNY meeting. The two meetings will serve me in the next few blogs.
Last week’s blog started with individual decisions that we make to go solar and ended with an admission that collectively we don’t yet fully comprehend the best way to make the transition to distributed energy sourcing and we are experimenting with the details (at least in the US). One of the strongest incentives for many of us to put up solar collecting facilities (whether direct solar, e.g., photovoltaic or indirect, e.g., wind) is the payback from the utilities for excess energy that we are not using. The map that starts this blog shows in some detail the present situation in 16 US states.
If you are inclined to install a solar facility to supply you with some of your needed energy, have a look at “Steps for Going Solar” in last week’s blog. The first item on this list suggests:
- Contact a solar installer – Receive at least a few different quotes to compare pricing, customer references, and financing options.
Don’t try to “economize” on this step, the process is complicated and confusing and seems “designed” to discourage self-help. The main presenters in the installers meeting were representatives from the NYC Building Department and the NYC Fire Department. You need to get permission to install the devices and the instructions on how to fill the forms are full of abbreviations that the installer must master. The reasoning is simple to explain, in the context of approval of the fire department, whatever you install cannot be an obstacle in case of a possible need for fire extinguishing. Conflicts here might cost lives.
An important incentive to install distributed energy in your house or your business is the desire to save money. When you are connected to the grid for your energy needs, your utility payment consists of two categories: fixed costs and direct payments to the utility for the amount of energy that you use. Your utility’s job is to supply you with as much energy as you need. If you replace utility supply with direct (or indirect, e.g., wind) solar energy, you depend on availability. To synchronize your energy availability with your energy needs, you will need either to equip yourself with an enormous energy storage capacity or use your utility for storage and be compensated for the energy that you send. As was mentioned in last week’s blog, the ability to return some of the energy to your utility and be compensated makes the connection with your utility bidirectional. As was also mentioned last week, the process of returning some power to the utility in exchange for compensation is called net metering.
The first two paragraphs of the introductory figure’s source describe net metering in more general terms than the short description that I provided in last week’s blog. It also comes from the perspective that net metering is a calculated subsidy for those who set up distributed generation (DG):
Net energy metering (NEM) is the policy available in many states that promotes customer-owned distributed generation (DG) resources (such as solar photovoltaic panels or PVs) by compensating DG owners for each kWh of generation at the retail rate. NEM policies were introduced when the costs of installing solar panels were much higher than they are today. The rapid adoption of PVs in recent years at an average annual growth rate of 30% from 2010 to 2018 demonstrates the effectiveness of NEM policies in helping this nascent industry take off1 .
However, as is generally true for most incentive payments delivered through rates, NEM policies create a subsidy issue from non-DG customers to DG customers. This is simply because most of the residential rates in the U.S. are volumetric in nature. Demand driven and fixed costs of power production and delivery are largely recovered on a $ per kWh basis. As a result, when a DG customer reduces their consumption of power from the grid, they bypass costs that are fixed and/or demand driven in nature, leaving non-DG customers with the burden of paying these grid costs.2 In addition, traditional NEM policy pays DG customers at the full retail rate for the export to the grid, even though exported DG power only avoids the generation cost but not the capacity cost of delivering services. NEM subsidies have grown with time as the number of customers on NEM has grown.
Distributed generation or DG, mentioned above, can be defined in the following way:
Distributed generation refers to a variety of technologies that generate electricity at or near where it will be used, such as solar panels and combined heat and power. Distributed generation may serve a single structure, such as a home or business, or it may be part of a microgrid (a smaller grid that is also tied into the larger electricity delivery system), such as at a major industrial facility, a military base, or a large college campus. When connected to the electric utility’s lower voltage distribution lines, distributed generation can help support delivery of clean, reliable power to additional customers and reduce electricity losses along transmission and distribution lines.
In the residential sector, common distributed generation systems include:
- Solar photovoltaic panels
- Small wind turbines
- Natural-gas-fired fuel cells
- Emergency backup generators, usually fueled by gasoline or diesel fuel
In the commercial and industrial sectors, distributed generation can include resources such as:
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Combined heat and power systems
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Solar photovoltaic panels
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Wind
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Hydropower
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Biomass combustion or cofiring
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Municipal solid waste incineration
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Fuel cells fired by natural gas or biomass
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Reciprocating combustion engines, including backup generators
Non-DG customers never approved such a subsidy, however, and figuring out how to structure the back payment (for power returned to the utility) is a work in progress. In last week’s blog, I started to describe the attempts in my state (NY) to create back payments that will retain some of the benefits and incentives for DG. Not surprisingly, changes in the payment structure have become a political issue. The NYS system is abbreviated as VDER (Value of Distributed Energy Resources). The broad outlines of VDER were described in the last blog, which ended with a description of the present state of the calculation (Phase 2 version). Below is a short description of how to do the calculation:
Solar Value Stack Calculator Rev 3.1
(VDER Phase Two) [XLSB]Use the Phase Two Calculator for projects that qualified after July 26, 2018. Projects qualify when they make their 25% upgrade payment to the utility. If no utility upgrade costs are required, projects qualify when the interconnection agreement is fully executed.
Of course, when I tried this, I got a very complicated Excel spreadsheet to fill out that probably only a professional installer would be able to accomplish.
The CCNY conference included input from CUNY, NYC, and the Federal government, on how to construct a model grid. Such a construction can serve as a guideline for the ongoing energy transition. It includes the development of decarbonized electricity use that is affordable, economically viable, and resilient. Some of these issues were addressed in previous blogs but changes in our understanding require constant revisits. Stay tuned.
