The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
Gridlock in 2030?
Policy priorities for managing T&D evolution.
less than their cost, should take advantage of the option to learn from early adopters before making a decision to invest. Among other things, further research is needed on consumer reactions to dynamic pricing, and effective consumer engagement and education strategies must be designed and tested in the field. To facilitate this, it’s important that detailed information on the results of early AMI deployments be made promptly and widely available. Finally, where wholesale electricity markets exist, effective competition in the retail sales of electricity might stimulate innovation in ways to make dynamic pricing both acceptable to consumers—and regulators—and effective in modifying demand.
Existing policies at state and federal levels favor distributed generation, particularly small-scale wind and solar, and these policies seem likely to continue. In addition to subsidies and regulatory mandates, 46 states and the District of Columbia have net-metering programs, which pay distributed generators for electricity they deliver to the grid at the retail rate rather than the wholesale rate that central station generators receive. The difference is mainly the cost of distribution—and sometimes transmission—which is almost entirely fixed in the short run but is typically recovered through per-kWh charges. Thus a customer who generates electricity onsite saves both the energy charge and the distribution charge for that electricity, but the utility saves only the corresponding energy cost. In this way, recovering network costs through per-kWh charges provides an additional subsidy to distributed generation of all sorts—both clean solar and dirty diesel—that might encourage its uneconomic penetration. Perhaps more importantly, this regime gives utilities disincentives to accommodate distributed generation or encourage energy efficiency, since both reduce its sales and profits.
The necessary policy change is straightforward but important. Fixed network costs should be recovered primarily through fixed customer charges. These charges might differ among customers, but shouldn’t vary with kWh consumption. For example, customer groups that are expected to contribute more to local peak demand based on their pattern of prior consumption could pay a higher fixed charge than customer groups that are expected to contribute less. Systems that continue to rely significantly on per-kWh charges for cost recovery should improve utility incentives by decoupling utility revenues from short-run changes in sales.
At high levels of penetration, distributed generation can exceed load at the substation level, causing unusual distribution flow patterns. These can produce high voltage swings, which can be detrimental to customer equipment. High levels of penetration can also add to the stress on electrical equipment, such as circuit breakers, and complicate the ability to operate the distribution system, particularly during emergencies and planned outages. Additional monitoring and new standards for operation, protection, and control will be necessary to enable significant penetration of distributed generation.
Reliability and Efficiency
New technologies can improve operator knowledge about the state of the transmission system and thus make possible more efficient and reliable operation. Phasor measurement units (PMUs) are powerful devices, being widely deployed with ARRA support, that provide rich streams of frequent, time-stamped data on system conditions that system operators can use to anticipate contingencies, reduce the risk of wide-area blackouts,