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PRITZWALK, GERMANY - SEPTEMBER 12: A photovoltaic cell lies on a table at the Aleo factory on September 12, 2012 in Pritzwalk, Germany. Aleo, which is owned by German engineering group Bosch, is fairing better than many of its competitors but a spokesman admitted the company is also suffering from the gradual reduction of the feed-in compenstation rates set by the German government, which gurantee fixed prices for electricity delivered into the German electricity grid. Several other solar industry firms in eastern Germany, including Q.Cells, Sovello and Solarwatt AG, have gone into bankruptcy this year. Aleo mainly produces solar panels installed on the roofs of residential houses. (Photo by Sean Gallup/Getty Images)

Feed-in Tariff Solves Net Metering Problems

Advanced technologies are creating new ways to generate electricity, enabling home-based power production using rooftop photovoltaic solar and other micro-generation systems.

Advanced technologies are creating new ways to generate electricity, enabling home-based power production using rooftop photovoltaic solar and other micro-generation systems.

Utah Associated Municipal Power Systems and its members support distributed, home-based electrical generation systems, along with efficiency and conservation measures to reduce the amount of electricity used.

Douglas Hunter

However, even with improved efficiency and micro-generation systems, almost all homes and businesses will want to stay connected to a robust and reliable electrical grid to supply power when the sun doesn’t shine or the wind doesn’t blow. And some citizens don’t have the desire or enough money to invest in home energy systems.

Thus, maintaining a healthy grid is of utmost importance as this transformation occurs in the energy industry. A strong economy and everyone’s health and safety depend on reliable and abundant energy. This is especially true as the auto industry is electrified, and as electronic devices proliferate, requiring vast amounts of electricity.

Most home electricity generating systems, like solar PV, must be tied into the grid. Power companies have used two different policies to provide credit to homeowners and businesses that generate part of their electricity needs.

One policy is called net metering, and the other feed-in tariff (FIT). Because net metering has been found to destabilize the grid and also cause rate inequities, many utility companies have placed moratoriums on further net metering connections until fair and equitable policies can be developed. It is obviously unfair for some customers to subsidize other customers. Rates should be fair to all citizens based on the real cost of service.

Under net metering, electricity generated by the customer is first used to meet the customer’s own on-site electricity needs, reducing the amount of electricity purchased from the utility. The customer avoids paying the retail rate for electricity except when solar  is not producing enough power to meet the customers’ on-site needs. At that point, the customer buys power from the utility. 

The problem is that the retail rate was designed assuming all of a customer’s energy usage would pay for the fixed costs of producing and delivering electricity, including capital investment, debt service and labor. 

Also, under net metering, if the solar  customer produces excess electricity, it is usually paid the highest price the utility pays for power. But the customer does not pay a fair share of the fixed costs when it needs to purchase electricity from the utility. These lost revenues are subsidized by those who are still purchasing all of their electricity from the utility.

FIT mechanisms address this rate discrimination and benefit all customers, while still encouraging home electrical generation. In a FIT program, the utility and customer sign a power purchase agreement (PPA). The energy output of the home solar system goes directly to the electric grid in front of the meter and system owners are paid for all generation output as outlined in the PPA.  The customer receives an electric bill, but it is offset by the payment from the utility. 

A key benefit of FIT is that the utility will know how much solar PV is on the system for resource planning purposes. A long-term PPA will also provide stability to the grid, and customers with solar  will be able to install and be paid for as much electricity as they can generate, regardless of their own needs.  Where FIT programs have been adopted, solar  installation has increased. 

UAMPS believes that a FIT program for distributed generation will allow customers desiring to install solar  to benefit, while not burdening other customers. Future resource planning can include expected generation from FIT solar PV, thus reducing future capital costs to all utility customers, and at the same time providing resources to maintain a reliable community-owned electrical system.

Douglas Hunter is Utah Associated Municipal Power Systems chief executive officer and general manager.

 

 

 

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