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The economic argument

This article accompanies the main feature, "Net metering -- a real world approach." Here, the focus is on the economic argument for net metering, made easier by the deregulation of electricity markets in the US and the "unbundling" of rates into administration, energy and distribution charges.

Deregulation of electricity markets in the US and the "unbundling" of rates into administration, energy and distribution charges is making it easier to win the economic argument for net metering. With transparent pricing in electricity bills, customers feeding power to the grid continue to pay administration charges, like other customers, and they also pay for any net energy consumption, after subtracting the amount they have generated for that month or year.

As for the distribution charge, a net metering customer is clearly using the distribution grid for "electron banking" and back-up. That service must be paid for. At the same time, though, their "embedded" or distributed generation can add value to the grid, by reducing line losses and increasing stability.

Depending on where and when the generator is operating and the condition of the local grid, the added value of embedded generation can be worth nothing, or, if it does away with the need for a major upgrade at the end of the line, it can be worth many times the per kWh distribution charge. The effort required to quantify the benefit would cost more than it is worth, so the simplest solution is to accept that over an entire system the advantages of embedded generation equal any incurred costs to the utility - and call it even. In effect, this is the route taken by Germany and Denmark over the past decade when politicians arbitrarily set wind power payments at a fixed percentage of the end consumer selling price of electricity.

Whether or not consumer generators should be paid for any excess power they deliver to the grid remains a moot point. In theory, the level of payment should equal the utility's avoided cost from not having to buy fuel, or power, from another source to supply that consumer. That is the view taken by the Public Utility Regulatory Policy Act, which, while mandating payment for excess generation, effectively caps it too, thus cutting both ways. Nonetheless, it might well be politic for the wind lobby to waive such payment in order to get net metering off the ground.

Some utilities have not yet unbundled their rates and their net metering rules do not require payment of service charges. In other words, a consumer generating all its own power makes no payment to the utility, regardless of the fact that the utility provides "stand by" power, or electron banking services. How utilities unbundle their rates could be crucial for energy efficiency and net metering. If distribution utilities put more of the cost on the service charge and less on the energy charge, there will be less incentive to net meter and less to conserve energy. It will also penalise low income customers by raising the fixed cost and making it harder to save money by using less.

Commercial customer rate structures typically add a demand charge, along with service charges and energy charges. Net metering with a wind turbine would not affect the service charge, it would reduce the energy charge, and it may or may not reduce the demand charge, depending on how well the turbine output matches the customer's peak demand periods.

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