Faced with aging assets, rising operating costs, growing regulatory risks, and flat demand growth, utilities are challenged to remain competitive in an evolving energy market. The answer might be...
Solar for Everyone, including Utilities
The Wrong Debate: Regulatory discussions on solar distributed generation (DG) continue to dwell on net energy metering (NEM). In this way, they focus on a narrow issue: what is the appropriate price for energy that solar customers export to the grid?
And discussions that do get past NEM inevitably get directed to a further question of similar import: what will the "utility of the future" look like as solar DG and other disruptive innovations gain prominence?
But are these the right questions at all? We believe it is more productive to start at square one and determine what the new grid architecture ought to be. If we agree that increasing consumer choice and the efficient delivery of energy services to all consumers are baseline goals, we should pose a rather different set of questions: namely, can we design the grid to (1) promote more energy efficiency, (2) reduce the emissions of pollution, including greenhouse gases, and (3) deploy more distributed energy resources (DER), such as solar DG and demand response?
Assuming these are desirable objectives for energy consumers, the next question is: what is the appropriate electricity market structure for the grid to achieve these objectives? We maintain that the best structure is one that, as much as possible, maximizes competition in the delivery of efficient energy services over a new distribution grid platform. The monopoly franchised distribution model is justified as long as it provides a public service that cannot be delivered sufficiently and cost-effectively through competition. If new technologies and businesses, however, can competitively provide such service, the model may need to change. Thus, we must first examine how competitive markets can best provide multiple grid services beyond simple delivery of electrons. Only then can we proceed to questions about the role of regulated utilities as owners of the distribution grid system, and how to compensate them appropriately for grid ownership and maintenance.
By asking the questions in reverse order and starting with NEM, current discussions over solar DG presuppose that minimizing the impact of disruptive innovations on regulated utilities is what's best for the public. This notion dramatically limits the scope of discussion and, in fact, will likely lead to suboptimal outcomes. It places incumbent utilities in an unassailable position by assuming that disruptive change is unwelcome; thus, they have little incentive to adapt and embrace innovation and competition. It also disadvantages innovators who might better serve the public.
Diminished reliability and unfair rates are not inevitable consequences of disruptions to the regulated utilities that own the grid. Nor are grid operations and ownership inextricably linked. In fact, new technologies, changing regulatory priorities, and shifting customer needs indicate that