My July 19, 2010 blog identified FiTs as part of a quiet revolution sparked in a number of states to encourage installation of clean and renewable electricity generation at a grassroots level.  This type of tariff requires utilities to purchase electricity from individual producers of different renewable energy sources at defined prices, ending the previous practice of costly one-off negotiations between producers and utilities, and greatly simplifying this relationship to benefit both parties. FiTs have been used around the world to ramp up renewable energy deployments, and are responsible for catapulting countries like Germany to the forefront of solar-sourced electricity generation. 

The FERC ruling resolves uncertainties about how states calculate FiT prices.  In the past, the calculation was based on “avoided cost” (defined in the Smart Grid Dictionary as “A price calculation based on the amount of money that a utility avoids paying for generation through use of cogeneration or distributed generation facilities.  It is the marginal cost for a regulated utility to generate or purchase one more unit of power.”)  While individual states’ calculations varied, most have been based on the costs to build a new fossil fuel generation facility or the purchase of fossil fuel-based power.  Now, costs must consider purchase of similar types of power (ie, other renewable sources), and new costs such as upgrades to transmission facilities must be factored in as well, creating a more level playing field for renewables like solar and wind. In other words, the “locational benefits” of local generation must be considered as part of the calculations to build a proper Feed-in-Tariff. 

Locational benefits factoring in transmission costs are part of DG’s very persuasive argument, but are not the only benefits.  Local generation using renewable energy sources can create local jobs, and negate the CO2 emissions that would otherwise be released through conventional power supplies.

The FERC ruling also commented on how to account for Renewable Energy Certificates (RECs) or credits as part of FiT transactions, so utilities can get credits for purchasing renewable DG, and DG producers get additional returns on their investments.  In summary, this is a boost for local generation of renewables, and all the benefits that accrue from it.  For more information about Feed-in-Tariffs, go to the FiT Coalition website.  

Proposition 23, the ballot initiative that two Texas oil companies hope will overturn California’s landmark clean air legislation enacted in 2006, will be decided on November 2 in California.  The immediate question is – should Californians protect their profits or our health and economic security?  From a broader perspective, do we want to use clean tech as a catalyst for new economic growth or continue on our current path?  Many businesses, including Cisco, eBay, and respected venture capitalists have spoken out against Prop 23, along with numerous state and city officials, the American Lung Association, AARP, local Chambers of Commerce, environmental organizations, and state business and community groups. 

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Smart Grid technologies can make our electrical grid more efficient and reliable.  We can add more programs to improve energy efficiency and reduce peak electricity requirements.  But we can encourage much greater consumer participation in being part of the solution through policies that promote distributed generation.  Distributed generation (DG) gives consumers the opportunity to reduce their electricity bills and use “home-grown” electricity.

Distributed generation simply means that electricity is produced close to its point of use.  DG doesn’t need new transmission lines (which can face long and expensive legal challenges) and puts an emphasis on locally produced electricity.  DG can be deployed in urban to rural settings and relies on clean, renewable sources of electricity such as solar and wind.  DG turns consumers into prosumers – Alvin Toffler’s term for a producing consumer.  The practice applies to residential and commercial buildings and microgrids. (For more information on microgrids, read here).

DG is a great strategy to address growing electricity consumption and put money in the pockets of consumers.  All states have the authority to encourage and support DG initiatives within their borders, enabled through net metering and interconnection policies.   Net metering lets commercial, industrial, and residential consumers create electricity and sell it back to their local utilities – basically running their meters backwards.  It differs from Feed-in-tariffs (a subject in last week’s blog) in the pricing arrangement for a utility purchase of this DG supply.  FiTs usually deliver improved returns on investments for consumers than net metering, but net metering is better than no policy at all.  Interconnection refers to the technical and legal procedures required to connect your generation source to the utility distribution network. 

There’s an interesting and very readable report called Freeing the Grid that was produced by the Network for New Energy Choices.  This report examines the policies in the fifty states and assigns grades based on assessment of variables that range from ease of interconnection procedures to economic implications.  Residents in California, Colorado, Maryland, New Jersey, Oregon, Pennsylvania and Virginia are lucky – these states receive high marks.  My condolences are extended to residents of Georgia, Indiana, Iowa, and Wisconsin. Your states make it extremely difficult for consumers to become prosumers. 

DG is good for states – it promotes in-state jobs and economic growth.  It helps resolve the looming requirements for additional energy and the need for new centralized generation and transmission assets.  It reduces CO2 emissions through increased use of renewable energy sources.  It helps consumers reduce their electricity bills.  Why wouldn’t every state want to extend the benefits of DG to their citizens?  That’s a great question to pose to your state utility commissioners.  

And now?  There’s a trend to distributed generation, evidenced in homeowners installing alternative energy solutions like solar and wind to offset at least some of their electricity needs.  Those numbers will certainly grow when Feed-In Tariffs (FITs) are in place in more states.  FITs require electric utilities to buy back excess electricity from individuals or businesses that have their own means of generating electricity from alternative energy sources.  The onset of smart meters helps the growth of distributed generation since these meters ostensibly can handle the ebb and flow of electricity.  However, a big obstacle to widespread adoption of distributed generation lies in the software that tracks and monetizes the electricity flow. 

The electric meter on your home or business is the cash register for a utility.  The billing software that calculates charges and sends out your monthly bill is usually a hairy and gnarly application that is modified only with great care and caution.  It may have to work with many different price models.  It may interface or integrate to other utility software applications for customer service, trouble tickets, and outage management.  Therefore, consider the time and effort involved for utilities to revise their existing systems (or take the risk of scrapping them for a new suite of integrated applications) to accommodate additional calculations to not only charge you for your use of their electricity, but pay you for their use of your electricity. 

Its quite a task, and possibly one without comparison.  My wireless carrier, landline provider, and cable TV provider are not set up to “buy back” unused time or channels (although I would love to stop paying for bundled cable channels I never watch), and the best deal I can find is that I get 5 cents off my grocery purchase for each bag I bring to use when shopping at my local stores.

Think about what billing software looks like to support distributed generation and FITs.  It has to interface with all other existing systems, and it has to have an interface to each participating homeowner or business.  That interface has to be real-time and hold historical data for look-backs that could range from yesterday to this day last year.  The complexity and amount of information is best managed by a web-based solution, so that homeowners can log in at any time from any computer to view their account.  Information has to include the pricing plan(s) for customers who sell back electricity, and visual displays of current flows – is the electricity flowing from utility to home or vice-versa?

Then think about what this means for the customer support operations in utilities.  People call now with questions about their bills.  There will be a huge increase in calls to utility customer service centers once distributed generation and FITs are more widely adopted.  Some of that volume is a learning curve issue and a percentage of calls will of course decrease over time, but invariably, homeowners will call in to question why their solar panels are not generating as much electricity as they think they should to trim their utility bills.  These calls really should go to the solar manufacturer, but if consumer behavior is true to form, the first call is to question the accuracy of the billing statement. 

Savvy Home Energy Management System providers (HEMS) have an opportunity to become the utilities’ best friends by reporting not only the energy consumption within a home, but also the energy generation in that home.  The ability to integrate to any manufacturer’s PV, wind, or other alternative energy system and report on performance (plus diagnostics for routine issues) can significantly impact the operational costs for utilities’ customer service centers. 

Distributed generation is going to be a big part of the Smart Grid evolution, and there will be lots of opportunities for strategic partnerships between energy producers and energy management solution providers.  Utilities could and should be encouraging these partnerships because it will make their jobs easier, and keep their customer service costs down.