Achieving the smart grid’s potential requires a revolution in electricity pricing. Smart metering and smart rates might yield surprising and beneficial changes in the U.S. utility industry. But...
Green Price Stability
New approaches account for the economic benefits of renewables.
fossil fuel-cost adjustments. However, because FCAs are an interim measure for addressing fuel-cost changes between rate cases, this approach only provides longer-term fuel-price protection if properly structured. In the short-term, FCA exemption provides a stable-price benefit to green power customers, but the benefit is negated if higher fuel prices become embedded in base rates without a comparable downward adjustment of the green power premium.
Finally, utilities simply can revisit the green power price premium when significant fuel price changes occur or when base rates are adjusted, and consider whether the green-power premium also should be adjusted as a result. This is the most common approach used by utilities over the years. And there is an open question as to whether green power customers also should be exempted from rate changes resulting from utility expenditures to reduce air emissions from fossil fuel combustion or from state renewable portfolio standard requirements.
The key challenges with all three approaches lie in accurately determining the conventional generation costs that are displaced by the increased utilization of the renewable energy resources and designing price structures that are fair to both green power consumers and nonparticipating ratepayers.
1. Standard power system mix typically includes electricity generated from fossil fuel and nuclear sources.
2. Bird, L.; Kaiser, M. (2007). Trends in Utility Green Pricing Programs (2006). NREL/TP-640-42287. Golden, CO: National Renewable Energy Laboratory.
3. NREL (April 22, 2008). “ NREL Highlights Leading Utility Green Power Programs .” News release. Accessed April 28, 2008 .
4. Hanson, C. (December 2005). “ The Business Case for Using Renewable Energy .” World Resources Institute, Corporate Guide to Green Power Markets, Installment 7 .
5. Bird, L.; Kaiser, M. (2007). Trends in Utility Green Pricing Programs (2006). NREL/TP-640-42287. Golden, CO: National Renewable Energy Laboratory.
6. In most restructured states it is more challenging to offer stable-priced products because of the long-term contracting challenges and lack of generation ownership. However, it might be possible to develop stable-priced products through the use of renewable energy certificates (RECs), which is discussed briefly.
7. In general, biomass processes are unique among renewables in sharing the combustion process with conventional fossil generation ( i.e., biomass facilities procure and burn fuel regularly to produce power over time). For a few biomass generation processes, like anaerobic digestion at a wastewater treatment plant, the fuel might be free.
8. The uncertainty associated with generation from variable renewable energy technologies (such as wind and solar that are available when the wind and solar resources are available) typically is reflected in ancillary service costs, which is addressed at length later in the paper
9. It is important to note that while some contracts with renewable project developers have a simple annual percentage escalator, such escalators are an artifact of typical industry practice rather than an increase in actual costs over time.
10. Energy Information Administration (EIA) (2007). Electric Power Annual with Data for 2006 . DOE/EIA-0348. Washington, D.C.: Energy Information Administration, U.S. Department of Energy. October .
11. Energy Information