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The Politics of Distributed Generation

Distributed Gneeration and Politics

One of the most interesting presentations this year at The Battery Show was the Fireside Chat – The State of Energy Storage Both Sides of the Meter panel, hosted by Dirk Spiers of ATC New Technologies.  The panel discussed the implications of storage and distributed generation for the traditional utility model.

A last minute addition to the panel was Haresh Kamath of EPRI.  EPRI is an independent research organization that is funded in large part by investor-owned utilities.  Haresh shocked a number of people in the audience by taking a somewhat hostile view of distributed generation and behind the meter storage.  Haresh said that it was unfair that wealthy people, by installing new distribution and storage technology, were imposing costs on poorer people.

I was also shocked by Haresh’s remarks, though less than by their content than their timing.  Distributed generation, of which behind the meter storage will be a key enabler, really does pose a long-term existential threat to the centralized electric utilities that have historically provided much of EPRI’s support.  That some of these utilities might react to that threat in whole or in part by using “rich vs. poor” political demagoguery in order to obstruct the deployment of new energy technologies is not a surprise.  It’s just that I thought we had about 10 years before we had to fight that battle—before any of the major players in the utility world started taking distributed generation and behind the meter storage seriously. 

Judging from Haresh’s remarks, I was wrong.  The gauntlet has just been thrown down, though by whom exactly is unclear.  Supporters of distributed generation and behind the meter storage are in, I suspect, for a tougher and dirtier fight than many may imagine.

With respect to Haresh’s remarks, I would take exception to them, though I would acknowledge that, as with all good demagoguery, they contain some seeds of truth. 

Properly understood, and properly represented, wealthier and better informed consumers are using distributed solar and behind the meter storage to do what they have been trying to do for years with other technologies: use electricity more efficiently and reduce their energy costs.  This includes investments in better home insulation, LED lighting and energy efficient appliances, as well as in PV solar panels and electricity storage.  Whether it is fair that it often takes money to save (or make) money is a larger issue in society than energy efficiency.  But few will contest that a greater public good is served by using electricity more efficiently—unless those few happen to be in the business of selling it.

The seed of truth in Haresh’s remarks concerns how the costs of maintaining the existing, centralized grid will be handled for those who cannot afford to move away from it.  This is a real issue and one that needs to be dealt with fairly and honestly.  The grid as it exists today includes of billions of dollars in stranded asset costs that were historically incurred for the benefit of all consumers, whether or not they seek to reduce or eliminate their reliance on the grid today.  Users of distributed generation and behind the meter storage can no more rightfully walk away from their obligation to help pay for those costs than could the Scots walk away from their portion of the UK national debt had they chosen independence.  In fairness, over the past few years, many wealthy and politically powerful consumers have looked to distributed generation and storage as a way of avoiding responsibility for their fair share of those costs.  That should not be allowed to happen.  But advocating for fair assessment of stranded grid asset costs is far different than trying to obstruct consumers from using new technologies, including distributed generation and behind the meter storage, to reduce their energy costs going forward.

Haresh also made another point during his presentation that bodes a little better for the coming fight over distributed generation and behind the meter storage.  Haresh said that the real future of electricity will have less to do with where it will be generated than how it will be networked.  Progressive utilities around the country are looking at new ways to play in the quickly evolving business of electricity.  Facilitating communications and transactions among the growing number of generators, transmitters, storers and consumers of electric power may well provide a profitable business model for the utilities of the future.  This kind of thinking should be supported and encouraged.  The battle within the utility community between the facilitators of distributed generation and storage and the obstructers will be an important one to watch.

In the meantime it is necessary for those involved in distributed generation and behind the meter storage to play close attention to the political headwinds that may soon be blowing against those technologies.  What is clear from Haresh’s remarks is that not all utilities are likely to see themselves as facilitators.  I fear that we will be hearing more from the obstructers soon.

Photo Credit: Distributed Generation and Politics/shutterstock

James Greenberger's picture

Thank James for the Post!

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Bob Meinetz's picture
Bob Meinetz on September 29, 2014

James, in reference to your comment:

Properly understood, and properly represented, wealthier and better informed consumers are using distributed solar and behind the meter storage to do what they have been trying to do for years with other technologies: use electricity more efficiently and reduce their energy costs.

What evidence do you have that distributed solar and behind the meter storage, including backup utility power and battery resistance losses, use electricity any more efficiently than pulling it directly from the grid?

Nathan Wilson's picture
Nathan Wilson on September 29, 2014

“…taking a somewhat hostile view of distributed generation and behind the meter storage. …  Distributed generation … really does pose a long-term existential threat to the centralized electric utilities…

There is certainly a controversy surrounding Net-Energy-Metering and more generally how billing plans for home and business owners with on-site generation should be structured.  But your assumption that utilities are [economically] hostile toward distributed generation due to their financial stake ignores the fact that vendors of distributed generation and storage also have a financial incentive to distort the playing field in their own direction.

There is a serious problem with your claim that distributed generation is just a way of “using electricity more efficiently”.  The cost of delivering electrical service to consumers has two part: energy and capacity.  The EIA data provides a cost breakdown which indicates that energy from fossil fuel electricity (i.e. the “Variable O&M” cost) is only about 3-5¢/kWh of the 10-20¢/kWh retail rates we pay.  The rest is basically what it costs to maintain the capacity to deliver the energy on demand.  

Historically the simplification of bundling the energy and capacity costs into one per kWh residential charge has been reasonable, since most residential users had about the same ratio of energy and capacity usage (for industrial users, the energy and capacity charges are often separate line items).  It turns out that distributed generation tends to drastrically reduce energy usage, but has little effect on the capacity requirements (i.e. the grid is used for 100% backup of the on-site generation).  Worse yet, instead of failing randomly (like thermal generators), on-site solar fails over entire cities or time-zones all at once (e.g. sunset).  This is not merely a problem of “stranded grid assets”; grid capacity is still needed to serve net-zero electricity solar homes, even those with on-site storage (unless an on-site backup generator is used).

Now that on-site solar generation is becoming popular, it is time to restructure rates to properly reflect the cost of grid capacity.  It is dishonest to refer to this rate restructing as obstructionism; if your industry needs a subsidy to prosper, then ask for a subsidy, but don’t mis-label it as fairness.

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