(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Beyond-the-meter technologies challenge the utility monopoly.
technologies won’t be homogeneous across all states, and it probably won’t happen in a revolutionary manner, but rather as an evolution. As market awareness increases among consumers, so will the penetration of these technologies.
In particular, a combination of three technologies—EVs, PV and HAN—likely will be offered in increasing scale by competitive retailers. By bundling these smart technologies with commodity sales, competitive retailers will be able to increase their revenue potential per customer, while keeping in check their incremental costs of acquisition and support, including billing and customer service.
The technologies deliver a higher lifetime value from each customer. In other words, the economics of the retail business improves significantly with smart-grid technologies—by more than 50 percent in a competitive market—while creating a completely new revenue stream in a regulated market (see Figure 2) .
The increase in penetration of smart-grid technologies in regulated markets also will act to accelerate the transition from regulated markets to competitive and open power markets. The rationale behind this argument is simple. As technology penetration increases, the load served by the utility decreases, leading to slower capital recovery. To counter this, incumbent utilities would have to ask for rate relief and increase tariffs to further improve the cost effectiveness of these technologies. One can quickly see the cyclical nature of this death spiral as utility actions will continue to increase the unit cost of grid power and, at the same time, fuel customer adoption of distribution generation and demand-side management technologies.
A closer examination of the economics for PV technology shows that the installation of PV equipment has a detrimental commodity impact, yet simultaneously provides a positive financing return on the leasing of the equipment for the retailer. For utilities and power producers in a competitive market, where power providers sell their power in the open market, the impact of the penetration of this technology would push inefficient generation out-of-the-money while the transmission and distribution organizations would be affected by lower volumes and a decline of implied rate of return. In a regulated market, the incumbent utility would face the full loss of the load and return on the associated assets, while the retailer would capitalize the return on the financing plus the potential of additional services.
Looking particularly at the PV technology, this technology might be expected to achieve grid parity in many states over the next decade (see Figure 3) . As the technology reaches grid parity— i.e., the price at which retail rates are equal to, or higher than, the PV levelized cost of energy—the market likely will continue expanding and driving future solar installations. The Energy Information Administration projects that growth in the next couple of years will continue to be led by the commercial segment (with 350 MW installed in 2009), followed by residential (80 MW) and utility scale projects (50 MW). Also, the residential sector likely will become more prevalent in the later part of the decade, with increasing consumer awareness of PV technology and its benefits. Retailers will be fundamental in driving penetration of PV technology in this