Category Archives: Utilities

Utility Death Spiral and the Parallels Between Solar and Energy Efficiency

There has been a lot of buzz in the electric utility industry over the last several years about an impending death spiral related to the rapid rise of distributed solar. And, to be sure, there is anxiety in the industry about what it all could mean. That said, opportunities exist for utilities to more actively engage with solar in a way similar to how utilities made peace with energy efficiency (“EE”).

The so-called death spiral would result from utilities losing revenue due to the solar owner’s ability to replace utility-provided electricity with self-generated electricity. As regulated monopolies, utilities are allowed to seek cost recovery from ratepayers.  If customers are using less electricity (quantified in kilowatt-hours [kWh’s]), then the utility has to recover its fixed costs from a shrinking number of kilowatt-hours, causing rates to increase.  As rates increase, the solar investment because even more attractive, thus further reducing the available number of kilowatt-hours from which to recover costs, and so on. The outcome – utility death (i.e. bankruptcy).

As such, utilities have taken different positions with regard to solar. Some utilities, for example in Nevada and Arizona, have openly opposed solar installations, at least as long as the compensation solar owners receive for the excess kilowatt-hours their solar produces is the utility’s retail electricity rate (known as “net metering”). This compensation is particularly evident (and troublesome) when a solar owner (homeowner, business owner) produces more electricity with their solar than they are using and receive compensation from their utility at the retail rate they are paying for electricity.

For example, if as a homeowner my rate is $.15/kWh, and in a given month I produce more electricity with my solar than I consume (say it’s 500 kWh), then my utility bill for the month would show a credit of $75 ($0.15 * 500).  This is problematic for the utility because, if given the choice, the utility would not procure for its customers electricity at a cost of its retail rate ($0.15). Instead, it would prefer (and so, generally, would all its customers since the utility will seek to recover these higher costs from all ratepayers) to procure electricity at market rates, which are likely less than $.15/kWh.  Even the cost of so-called “utility-scale solar” (think, big arrays of solar fields on open land) can be considerably less than $.10/kWh (and frequently less than $.05/kWh) and, therefore, preferred by the utility to purchasing rooftop solar for $0.15/kWh.

Now, the utility is hard-pressed to oppose customers who want to install solar for the primary objectives of reducing their bill and being green. After all, utilities encourage these same customers to install energy efficient equipment (think rebates for LED bulbs), which basically has the same effect on the utility’s revenues (reduces them relative to electricity used by less efficient equipment). Energy efficiency programs at this point are fairly standard among utilities and are generally encouraged by utility regulators.

Not so many years ago, utilities were concerned about energy efficiency programs, seeing them as a drain on revenues.  The regulatory “best practice” summarized by ACEEE authors York and Kushler in their 2011 publication included facilitating program cost recovery and offering ‘throughput incentives’ (e.g. blunting effects from lost revenues) and actual earnings opportunities for investments in EE.  Some regulators approved these throughput incentives, but more were amenable to performance-based earnings opportunities (see article and map). These performance-based incentives were viewed as more palatable and had the double-benefit of aligning the utility’s financial self-interests with pursuit of energy efficiency. After all, why would a utility (without financial incentives) choose on its own to invest in energy efficiency if this meant reducing revenues on the primary product they sell? Of course, regulators might opt to order the utility to make the investments, whether the utility liked it or not.

The differences between energy efficiency and solar that underscore why solar is more of a threat include: 1) no such earnings mechanisms yet exist for solar, 2) it is impossible for customers to save so much electricity from energy efficiency that they will be net electricity producers [and, therefore, ‘net metering’ is not an issue], and 3) utilities in their heart of hearts do not truly believe that impacts from energy efficiency will be so great such that their revenues will take a dramatic hit [despite the hue and cry over lost revenues mentioned above]. Lately, though, flattening electricity use (prior to the rise of solar) is posing challenges to the third observation. Of course, if the observation is true, then this only increases utility anxiety about solar (double whammy).

But, is there a way that utilities can make peace with solar similar to how they made peace with EE? The strategies utilities can take fall into a few categories: regulatory fixes, opportunistic out-of-territory investments, and opportunistic in-territory investments. Which approach a utility pursues depends on a variety of factors, but the overall point is that distributed solar need not bring the utility to its knees.  For now (before a future blog entry details the possible approaches), here are a few articles with proposed solutions.

The solar option that’s REALLY ready for prime time

Since I dabble in energy stuff, friends frequently ask my opinion on such mundane topics as:

  • Should I get one of those cool looking programmable thermostats?
  • Is that thing that the utility uses to control my air conditioner making my house hot?
  • Why do I get those reports that compare my energy use to my “neighbors”?
  • Is now the time to go solar?

Of course, these topics aren’t so mundane to me. I find this last one particularly interesting and timely. And, to be sure, my friends aren’t the only ones who wonder about going green, as evidenced by Gallup polling on energy topics.

Question: Which of the following approaches to solving the nation’s energy problems do you think the U.S. should follow right now — [ROTATED: emphasize production of more oil, gas and coal supplies (or) emphasize the development of alternative energy such as wind and solar power[1]]?

POLL DATES Oil and gas Alternative energy Both Equally (vol.) Neither/Other (vol.) No opinion
% % % % %
2017 Mar 1-5 ^ 23 71 4 1 1
2016 Mar 2-6 ^ 21 73 3 1 2
2014 Mar 6-9 ^ 32 64 3 1 *
2013 Mar 7-10^ 31 59 7 1 2
2012 Mar 8-11^ 34 59 5 1 1
2011 Mar 3-6 ^ 26 66 6 1 1
^Asked of a half sample; * Less than 0.5%; (vol.)=volunteered response

Solar energy has made some pretty tremendous technological advancements in recent years and, when combined with aggressive marketing, innovative financing (“no money down”) and ample sun, can be an appealing option for one’s rooftop. Simple paybacks on investment can be as low as 5 years (or immediate if one opts for the no money down third-party financing approach – see SolarCity’s description). But, putting black panels on your house isn’t the only way to take the solar path to an alternative energy future.

Other options in many states include doing nothing (and relying upon the utility to invest in solar on its own), selecting a utility-provided solar product, or buying from a solar garden. In the case of the first two examples, utility-scale solar (think very large fields of panels or technological masterpieces like those mentioned on this site) tends to be the least expensive on a cost per kWh basis and, as such, pushing your utility to add solar to its supply portfolio is a good option. Now, in this case, the solar power will be blended with other resources and your power will, therefore, come from solar, other renewables (e.g. wind), and fossil-fueled resources.

Yet another option is the utility-provided solar product. Utilities like Xcel Energy and Portland General Electric offer residential customers, for a small premium (“green tariffs” or “green pricing” – not exactly the same. See this study (p. 11) for differences), the opportunity to designate the percentage of their power that comes from renewable resources. Driven by customer purchases, the utility, in turn, invests in more solar power production. Note that there are more green purchasing programs targeted to larger (non-residential) customers. In addition, customers in states with deregulated retail electricity markets generally have the option of purchasing 100% renewable electricity (see Pennsylvania, Texas and Massachusetts for examples).

Then there are solar gardens (also known as “community solar”), which are modestly-sized solar fields that sell to residential and commercial customers. For example, in Minnesota (the primary focus of this post), developers are currently building community solar installations and selling “shares” to customers at prices lower than retail rates. In other words, a customer who prefers not to (or can’t) put solar on her roof can select 100% solar and immediately cut her utility bill. Although the savings are not dramatic, it still means going all in on alternative energy and saving money. This is possible because the Minnesota PUC requires that utilities provide credits to customers (based on a metric that approximates retail rates) that are higher than the prices community solar developers charge. Talk about an easy (and financial no brainer) way of encouraging alternative energy! There are some catches, though.

For one, the contract with the solar provider will include an annual escalation rate (e.g. 2.5%) which will remain lower than the utility credit as long as the utility’s rates continue to increase (not a bad bet)[2]. In addition, most providers charge “exit fees” if the customer moves out of the area or decides they no longer want to participate. These exit fees generally only apply if the provider is unable to sell your obligation to another customer (customers can also transfer their subscription to another eligible customer – say, the person buying your home). This is understandable given that the provider is investing in a solar system and needs to recover their costs. A typical customer contract is 20 years. Exit fees vary between providers. Some waive the fee.

Information about Minnesota community solar is plentiful and organizations such as the Clean Energy Resource Teams (CERTS) provide a nifty calculator (see “Crunch numbers with calculators” section) to estimate one’s potential savings over time. I modified the CERTS spreadsheet tool for Xcel Energy customers to include pricing information I was able to obtain from four of the current providers. It should be noted that the providers do not have unlimited openings for customers since they will only develop a certain number of solar fields within each county. In addition, customers are restricted to buying from gardens in their own county. Once a field is obligated, the provider will stop taking new subscribers unless they are able to build a new field. You can enter information into this spreadsheet to get a sense for what you can save.

Our caution to readers is that the prices are from the week of September 18, 2017 and a provider may no longer have available subscriptions for one’s county (Xcel periodically updates this spreadsheet (Firefox users may need to right-click and select “Save Link As …) with the planned projects and their availability). Still, it’s worth checking out. The current options and future for solar are bright.

[1] If, like me, you were wondering what “rotated” means in this context. Apparently, polling folks mix up the way and order in which questions are asked to ensure that responses are not biased by order or wording.

[2] The rate at which the utility’s rates increase is a factor here. Put simply, if the utility’s rates increase at a lower rate than the solar provider’s escalation rate, at some point the credit may be lower than the utility rate.

Primer on energy efficiency

At the encouragement of the younger people in our lives to become more social media savvy, The Mendota Group, LLC is launching this Blog.  The aim is to muse about issues and items related to the work we do.  The hope is that this doesn’t devolve into excessive amounts of navel gazing (great term btw) and instead provides useful information and possibly a dialogue with readers. These days we primarily work in the energy efficiency (aka “EE”) realm and this first blog post will be about just that.  Of note, more broadly, we work in the area (fairly newly termed) of Distributed Energy Resources (DER).*

This post is a primer of sorts about the world of energy efficiency.  The Lawrence Berkeley Lab definition at the provided link is a good one.  The primary notion is that, with energy consuming equipment (broadly defined to include buildings, appliances, etc.), it’s entirely possible (and very often preferable) to derive the same amount of services (work, utils, benefits, etc.) while reducing energy requirements.  Energy efficiency is to be distinguished from energy conservation, which achieves reduced energy requirements by reducing services (work, utils, benefits).  Former Pres. Jimmy Carter turning down the thermostat in the White House and wearing cardigan sweaters is a classic example of conservation because Carter sacrificed to reduce the WH’s energy consumption.  Although there’s nothing wrong with conservation, it often gets a bad rap because it equates with sacrifice or compromise, and we Americans don’t much like to sacrifice.  Of course, conservation is often much less expensive to implement because implementing energy efficient alternatives generally having higher up-front costs (although they pay themselves back through energy savings).  But, and this is key, the other reason conservation gets a negative knock is that it’s not generally as easily sustained.  The day after his Report to the Nation on Energy, Pres. Carter could have simply jacked up his thermostat, ditched his cardigan and ignored his own advice.  However, if he had instead invested in a more efficient furnace (the energy efficient alternative), ditching the cardigan wouldn’t have been a problem because he still would have reduced energy consumption and the reductions would be “permanent” (or at least, they would be sustained for the life of the furnace).

With that out of the way, we thought it might be useful to help guide the energy efficiency advocacy newbie to organizations and publications that can prove helpful in becoming educated and keeping informed.  To begin with, two organizations based in Washington, D.C. are a great source of information on energy efficiency: the American Council for an Energy Efficient Economy and the Alliance to Save Energy. There are a host of other organizations and agencies that are also great sources of info, although most of these extend well beyond energy efficiency.  These include: The Regulatory Assistance Project, the aforementioned Lawrence Berkeley National Laboratory, the U.S. Department of Energy, the U.S. Environmental Protection Agency, the Rocky Mountain Institute, and the International Energy Agency (lest we seem too U.S.-centric).

We also find that membership organizations like the Association of Energy Service Professionals and the “regional” energy efficiency alliances: the Midwest Energy Efficiency AllianceNorthwest Energy Efficiency Alliance, Northeast Energy Efficiency Partnerships, Southwest Energy Efficiency Project, Southeast Energy Efficiency Alliance cover energy efficiency topics nicely and can help keep one current.

Finally, we subscribe to a number of free publications that help keep us up-to-date on EE topics. Fierce Energy, the various Utility Dive pubs, EnergyEfficiencyMarkets.com, Energy Central, and Zondits give good current info.  Lastly, for paid publications, we receive Public Utilities Fortnightly and The Electricity Journal. Although these paid pubs are not focused on energy efficiency, they provide valuable insights about the evolving electric and natural gas industries.  E-Source is a paid service with a wealth of data about EE and renewables.

There are likely other sources of information that we’re missing but this should provide a good overview/introduction to the world of energy efficiency.  As The Mendota Group evolves, so too will the topics this blog attempts to cover.  Please feel free to reach out and suggest information we’re missing or suggest topics.

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* DER, oh by the way, seeks to encompass all of the “smaller” (compared to central station power plants), customer-sided, grid-connected resources including EE, demand response (DR), renewable [and non-renewable] resources, and energy storage, among others (big file).  There is some debate over whether EE and DR are included in the def, but we’ll assume they are. top