DESCRIPTION
Utilities are in the business of supplying energy to their customers. Logically they tend to measure their strength and value on the basis of total retail sales. Particularly for investor-owned utilities, revenue growth becomes a metric on which their performance is judged.
This need for growth in electricity sales volume is often in conflict with the broader desire to use energy more efficiently and promote the use of solar and other on-site generation technologies, both of which contribute to reducing greenhouse gas emissions and relieve capital costs.
Utility revenue policies and rate structures can be designed so that utilities and their shareholders are rewarded for supporting on-site renewable energy generation, while at the same time customers are given price signals that encourage maximum contribution to the peak energy needs of the grid.
Decoupling. One policy that is gaining popularity among utility regulators is decoupling, wherein utility profits are not directly linked to revenues. By removing the direct connection, utilities can pursue programs that encourage energy efficiency improvements and on-site generation among their customers – while preserving their ability to earn healthy profits for their shareholders.
Rates. The point of a solar panel is to save energy – the price of energy directly determines how much solar makes sense.
In many places, you pay one single price for all energy – whether it is delivered at 4 AM from a plant paid for years ago and fueled by cheap coal, or at 4 PM when the grid is strained to its utmost and the real price of energy is sky high.
Many utilities even offer volume discounts – charging you less the more you buy. Clearly, this tends to discourage both energy efficiency and self-generation systems like solar.
There are some good examples of how best to structure tariffs to provide win-win approaches for utilities, customers and shareholders. Business as usual, which encourages the waste of energy, is no longer suitable in addressing the reduction of greenhouse gases (GHGs), increasing demand, the capital costs of new construction and the volatile supply pricing of conventional sources.
Match rates to the actual cost of energy. In most states, electricity produced or acquired by utilities during summer afternoons is vastly more expensive than at night or in winter. The rates charged to customers don't often reflect these dramatic cost differences. As a result, homeowners and businesses have no particular incentive to minimize their use of grid-supplied electricity during peak hours, whether through efficiency improvements or on-site generation. This lack of incentive drives costs up for everyone as demand for peak energy continues to grow.
Reduce or eliminate demand charges for commercial customers and increase energy charges commensurately. Demand charges are those based on the maximum electrical demand on a site over a certain time. If we think of electricity as water, demand charges are levied on the size of a customer's pipe, not on how much water flows through it.
High demand charges – particularly those that are based on very long time periods (charging customers based on the most they used over a whole month or even a full year) – undermine solar system economics. Some utilities have adopted optional rate schedules that eliminate these charges in lieu of very high peak energy charges. This structural change to rates provides a strong incentive to solar system owners to maximize production during peak hours when it is most valuable to the utility and its ratepayers.
Provide choice. No one plan fits every consumer, whether residential, commercial or industrial.
The electric bill is where clean energy turns into dollars and cents. Smart rates can drive clean and efficient use of energy while making sure utilities are paid in full; bad ones can encourage sloppy use of energy. Utility revenue policies can also encourage efficient use of energy and on-site generation by customers while maintaining utility profits.
