The economic effect of electricity net-metering with solar PV: Consequences for network cost recovery,cross subsidies and policy objectives

Net-metering is commonly known as a practice by which owners of distributed generation (DG) units may offset their electricity consumption from the grid with local generation. The increasing number of prosumers (consumers that both produce and consume electricity) with solar photovoltaic (PV) generation combined with net-metering results in reduced incomes for many network utilities worldwide. Consequently, this pushes utilities to increase charges per kW h in order to recover costs. For non-PV owners, this could result into inequality issues due to the fact that also non-PV owners have to pay higher chargers for their electricity consumed to make up for netted costs of PV-owners. In order to provide insight in those inequality issues caused by net-metering, this study presents the effects on cross-subsidies, cost recovery and policy objectives evolving from different applied netmetering and tariff designs for a residential consumer. Eventually this paper provides recommendations regarding tariffs and metering that will result in more explicit incentives for PV, instead of the current implicit incentives which are present to PV owners due to net-metering.     

Rejecting renewables: The socio-technical impediments to renewable electricity in the United States

If renewable power systems deliver such impressive benefits, why do they still provide only 3 percent of national electricity generation in the United States? As an answer, this article demonstrates that the impediments to renewable power are socio-technical, a term that encompasses the technological, social, political, regulatory, and cultural aspects of electricity supply and use. Extensive interviews of public utility commissioners, utility managers, system operators, manufacturers, researchers, business owners, and ordinary consumers reveal that it is these socio-technical barriers that often explain why wind, solar, biomass, geothermal, and hydroelectric power sources are not embraced. Utility operators reject renewable resources because they are trained to think only in terms of big, conventional power plants. Consumers practically ignore renewable power systems because they are not given accurate price signals about electricity consumption. Intentional market distortions (such as subsidies), and unintentional market distortions (such as split incentives) prevent consumers from becoming fully invested in their electricity choices. As a result, newer and cleaner technologies that may offer social and environmental benefits but are not consistent with the dominant paradigm of the electricity industry continue to face comparative rejection.     

Retail price effects of feed-in tariff regulation

The feed-in tariff regulation is the widest spread instrument used to promote electricity generation from renewable energy sources in the EU, with the costs of resources devoted to this promotion usually being borne by final consumers. Two components of the electricity retail price are expected to be influenced by the feed-in tariff regulation: the incentive to those firms producing electricity from renewable energy sources and the wholesale price of electricity. In this study we analyze the effects that the feed-in tariff regulation has on the electricity retail price for industrial consumers. We estimate the relative intensity of the impact of the cost of support electricity generation under the feed-in tariff and the electricity wholesale price on the Spanish industrial retail price. Special attention is devoted to technology-specific considerations, as well as short and long run effects. The results show that there is not a strong link between the retail and wholesale market for Spanish industrial consumers. Moreover, the results indicate that an increase of solar generation leads to a higher increase in the industrial retail price than in the case of a proportional increase of wind generation. This suggests that, when evaluating the feed-in tariff regulation impact on the retail price, the cost of incentives effect prevails over the wholesale price effect, and this is stronger for solar than for wind generation.     

Solar feed-in tariffs and the merit order effect: A study of the German electricity market

This study investigates the merit order effect (MOE) of the recent years' implementation of solar power in Germany. Market clearing electricity prices and production levels are compared for the years 2009–2011, and a model for the relationship between the electricity price and price sensitive electricity production is developed and applied to predict electricity prices in Germany from July 2010 to July 2011 with and without solar electricity generation (SEG). The results show that the SEG has caused a 7% reduction in average electricity prices for this period. The average daily maximum price and daily price variation are also found to decrease, by 13% and 23%, respectively. When taking the MOE into account the net consumer's cost of the solar feed-in tariff (FIT) system is found to be 23% less than the charge listed in the electricity bill. The German FIT policy for solar power has been subject to considerable public debate, and a common argument brought up in disfavor of the system is the high cost for the consumers. In this study we demonstrate the importance of including the MOE when evaluating the total costs and benefits of the FIT policy mechanism.     

A looming revolution: Implications of self-generation for the risk exposure of retailers

Managing the risk associated with uncertain load and prices has always been a challenge for retailers in electricity markets. While a number of standard derivatives contracts are available to hedge the price risk, managing the load variability used to be comparatively straightforward as this variability was largely predictable in the past, especially when aggregating a large number of consumers. In contrast, the increasing penetration of unpredictable, small-scale electricity generation by consumers, i.e. self-generation, constitutes a new volume risk that cannot be hedged through standard derivatives contracts. Using a DCC-GARCH approach and Monte Carlo simulations based on German historical loads and prices, the contribution of decentralized solar PV self-generation to the load, price and revenue risk of retailers is assessed. Our results reveal a significant revenue risk exposure of retailers arising from increasing levels of intermittent self-sufficiency, which is largely driven by the increasing load risk and to a lesser extent by the increasing price risk. Therefore, this analysis is relevant when considering distributed energy systems and peer-to-peer business models entailing a load forecasting challenge for traditional retailers, which will be crucial to address in the context of the transition towards power systems based on renewables.     

Impact of industrial virtual power plant on renewable energy integration

An industrial park is one of the typical energy consumption schemes in power systems owing to the heavy industrial loads and their abilities to respond to electricity price changes. Therefore, energy integration in the industrial sector is significant. Accordingly, the concept of industrial virtual power plant (IVPP) has been proposed to deal with such problems. This study demonstrates an IVPP model to manage resources in an eco-industrial park, including energy storage systems, demand response (DR) resources, and distributed energies. In addition, fuzzy theory is used to change the deterministic system constraints to fuzzy parameters, considering the uncertainty of renewable energy, and fuzzy chance constraints are then set based on the credibility theory. By maximizing the daily benefits of the IVPP owners in day-ahead markets, DR and energy storage systems can be scheduled economically. Therefore, the energy between the grid and IVPP can flow in both directions: the surplus renewable electricity of IVPP can be sold in the market; when the electricity generated inside IVPP is not enough for its use, IVPP can also purchase power through the market. Case studies based on three wind-level scenarios demonstrate the efficient synergies between IVPP resources. The validation results indicate that IVPP can optimize the supply and demand resources in industrial parks, thereby decarbonizing the power systems.     

Determining profits for solar energy with remote sensing data

The objects of the article are to determine the profits for solar energy integrating remote sensing data: the optimal locations of photovoltaic and the base price of electricity resulting from solar energy. An illustrated experiment with five European countries data sets is taken. Results indicate that Germany is the only optimal region to set up photovoltaic so as to satisfy the electricity demand of the five considered. Results also show that solar energy is a promising energy source since the highest base price of electricity resulting from solar energy is only 0.35 $/kWh. The base electricity price for Germany is the lowest whereas the base electricity price for Italy is the highest. Moreover, the results further indicate that the photovoltaic module price plays a key role in determining the best appropriate region(s) to install photovoltaic and the base electricity price.     

Fruitful symbiosis: Why an export bundled with wind energy is the most feasible option for North African concentrated solar power

The idea of generating electricity in North Africa using concentrating solar thermal power (CSP) has been around for some time now but has recently gained momentum through the Mediterranean Solar Plan (MSP) and the formation of the Desertec Industrial Initiative. This paper argues that while the large-scale deployment of CSP in North Africa does not seem economically attractive for either European or African institutions or countries on their own at present, combining domestic use and electricity exports could be profitable for both parties. A detailed economic portfolio covering both solar and wind power plants can achieve competitive price levels, which would accelerate the diffusion of solar technology in North Africa. This portfolio could be financed partially by exporting electricity from solar thermal plants in North Africa via HVDC interconnections to European consumers. Sharing the costs in this way makes it possible to generate solar electricity for the domestic market at a reasonable cost. Some of the electricity produced from the solar power plants and wind parks in North Africa is sold on European energy markets in the form of a long-term contracted solar–wind portfolio, which would qualify for support from the financial incentive schemes of the European Member States (e.g. feed-in tariffs). This transfer of green electricity could help to meet the targets for energy from renewable energy sources (RES) in the EU Member States as the new EU Directive of 2009 opened the European electricity market to imports from third states.     

Impacts of reforming energy subsidies on small scale generator business in Iran

Iran had been dedicating a substantial amount of its budget, known as subsidy, to keep the price of natural gas and electricity for customers considerably lower than real cost until 2011. Legislatures passed a law reforming energy subsidy in 2011, but this process is to take five years. Iran ceased to fully-subsidize from 2011, and gradually continues this process through 2015 when no subsidy will be paid. After 2015, the energy price will reach its prime cost. In addition, Tavanir organization, official organization of electrical energy management, published the “contract of guaranteed purchase price of energy for small scale generator”. Based on the contract, the Ministry of Energy guaranties that electricity generated by a small scale generator is purchased at a price higher than market purchase price (http://www.tavanir.org.ir: letter no. 52504/350, October 22, 2008). These two issues, reforming subsidies and incentives for small scale generators' owners, would affect distributed generation areas in terms of operation and investment. This research studies effects of reforming energy subsidy on optimum daily operation of a Fuel Cell Power Plant (FCPP), as an example; however, the results are not only helpful for FCPP but also extendable to some extent to other small scale distributed generators.     

Innovation subsidies versus consumer subsidies: A real options analysis of solar energy

Given the interest in the commercialization of affordable, clean energy technologies, we examine the prospects of solar photovoltaics (PV). We consider the question of how to transition to a meaningful percentage of solar energy in a sustainable manner and which policies are most effective in accelerating adoption. This paper develops a stochastic dynamic model of the adoption of solar PV in the residential and commercial sector under two sources of uncertainty – the price of electricity and cost of solar. The analytic results suggest that a high rate of innovation may delay adoption of a new technology if the consumer has rational price expectations. We simulate the model across alternative rates technological change, electricity prices, subsidies and carbon taxes. It is shown that there will be a displacement of incumbent technologies and a widespread shift towards solar PV in under 30 years – and that this can occur without consumer incentives and carbon pricing. We show that these policies have a modest impact in accelerating adoption, and that they may not be an effective part of climate policy. Instead, results demonstrate that further technological change is the crucial determinant and main driver of adoption. Further, results indicate that subsidies and taxes become increasingly ineffective with higher rates of technological change.     

The insurance effect of renewable distributed energy resources against uncertain electricity price developments

To combat climate change, many countries all around the world currently foster the development of renewable energy sources (RES). However, in contrast to traditional energy systems that relied on few central power plants, RES are typically highly decentral and spread all over a country. Against this backdrop, the promotion of a decentralization of the energy system by fostering a regional balance of energy demand and supply with a corresponding increase in energy democracy is seen as a promising approach. However, energy democracy driven by an increasing involvement of consumers requires adequate investments of consumers in their own local RES in order to become active players, usually called prosumers. Risk associated with uncertain long-term electricity price developments is generally seen as a barrier to investments. In contrast, we describe that an investment in distributed energy resources (DERs) may actually serve as a consumer's insurance against price risk. Our results set out that the consideration of risk-aversion may actually positively shift an investment decision in renewable DERs. This is due to the prosumer becoming more self-sufficient and less dependent on uncertain price developments. To analyze such an insurance effect, we create a formal decision model considering the prosumer's risk-aversion and derive the prosumer's optimal investment in renewable DERs. However, our results also indicate that under some circumstances the insurance effect disappears: When a prosumer turns into a predominant producer, the prosumer is again exposed to risk in terms of uncertain revenues. Ultimately, our work highlights the importance of a consideration of the insurance effect when assessing an investment in renewable DERs.     

Potential of building-scale alternative energy to alleviate risk from the future price of energy

The energy used for building operations, the associated greenhouse gas emissions, and the uncertainties in future price of natural gas and electricity can be a cause of concern for building owners and policy makers. In this work we explore the potential of building-scale alternative energy technologies to reduce demand and emissions while also shielding building owners from the risks associated with fluctuations in the price of natural gas and grid electricity. We analyze the monetary costs and benefits over the life cycle of five technologies (photovoltaic and wind electricity generation, solar air and water heating, and ground source heat pumps) over three audience or building types (homeowners, small businesses, large commercial and institutional entities). The analysis includes a Monte Carlo analysis to measure risk that can be compared to other investment opportunities. The results indicate that under government incentives and climate of Toronto, Canada, the returns are relatively high for small degrees of risks for a number of technologies. Ground source heat pumps prove to be exceptionally good investments in terms of their energy savings, emission, reductions, and economics, while the bigger buildings tend also to be better economic choices for the use of these technologies.     

Option value of electricity demand response

As electricity markets deregulate and energy tariffs increasingly expose customers to commodity price volatility, it is difficult for energy consumers to assess the economic value of investments in technologies that manage electricity demand in response to changing energy prices. The key uncertainties in evaluating the economics of demand–response technologies are the level and volatility of future wholesale energy prices. In this paper, we demonstrate that financial engineering methodologies originally developed for pricing equity and commodity derivatives (e.g., futures, swaps, options) can be used to estimate the value of demand-response technologies. We adapt models used to value energy options and assets to value three common demand–response strategies: load curtailment, load shifting or displacement, and short-term fuel substitution—specifically, distributed generation. These option models represent an improvement to traditional discounted cash flow methods for assessing the relative merits of demand-side technology investments in restructured electricity markets.     

Operational performance of energy storage as function of electricity prices for on-grid hybrid renewable energy system by optimized fuzzy logic controller

Realization of benefits from on-grid distributed generation based on renewable energy sources requires employment of energy storage to overcome the intermittency in power generation by such sources, while accounting for time-varying electricity prices. The objective of this study is to examine the effects of time-varying electricity prices on the performance of energy storage components for an on-grid hybrid renewable energy system (HRES) utilizing an optimized fuzzy logic controller (FLC). To achieve the objective, FLC membership functions are optimized for minimizing the operational cost of the HRES based on weekly and daily prediction of data for grid electricity price, electrical load, and environmental parameters, including wind speed, solar irradiation, and ambient temperature, using shuffled frog leap algorithm. FLC three inputs include (a) grid electricity price, (b) net power flow as the difference between energy produced and energy consumed, and (c) state of charge (SOC) of battery stack. It is confirmed that accounting for grid electricity price has considerable effects on the performance of energy storage components for operation of on-grid HRES, as the weekly and daily optimized FLCs result in less working hours for fuel cell and electrolyzer and less fluctuations in SOC of battery stack.     

Profitability and productivity changes in the Korean electricity industry

The Korean electricity industry saw significant changes following the reform in April 2001. Until the last decade, the industry was monopolized by the Korea Electric Power Corporation (KEPCO), a state-owned, vertically integrated company. The 2001 reform divided KEPCO's power generation division into six power generation companies (GENCOs), with the aim of improving efficiency and introducing competition in the electricity industry. In this study, we used capital total factor productivity (KTFP) to analyze profit changes from fixed input capital, and an index number profit decomposition (INPD) to examine the sources of the profit changes. We investigate the industry thoroughly from three points of view: the overall industry over time; the power generation sector by company; and the transmission and distribution sectors of the Korea Electric Power Corporation (KEPCO). Next, we measured how the profits from productivity growth were distributed to consumers, fuel suppliers, employees, and company owners. The results suggest that a more reasonable price system for both wholesale and consumer prices needs to be implemented prior to the privatization and deregulation of the Korean electricity industry.     

Economic assessment of virtual power plants in the German energy market — A scenario-based and model-supported analysis

The energy transition (“Energiewende”) in Germany will result in a substantial transformation of the energy supply system. Virtual power plants are expected to be important components of the new intelligent energy infrastructure. They aggregate beside different types of distributed generation units also active consumers and storage technologies in order to integrate these in a profit-maximising, system-stabilising, and sustainable way. The assessment of the economic performance of virtual power plants requires a scenario-based and model-supported analysis. In this relation, future energy market conditions are simulated using the scenario methodology. Starting from the year 2015, three scenarios have been identified that illustrate alternative energy developments in Germany by 2030. Based on these scenarios, the additional revenues potential of the modeled virtual power plant is identified when compared to an independent and non-market-oriented operation mode of distributed energy resources. According to the model results, revenues of the VPP can increase by 11% up to 30% in the analyzed scenarios in 2030 due to the market-oriented operation mode. Nevertheless, the amount and composition vary depending on technology-specific subsidies, temporary nature of power demand and price structures in the energy market. Fluctuating renewable energies are expected to benefit from the market-oriented operation mode in the virtual power plant, especially through the EEG direct marketing. The selective and regulated shutdown of renewable energies in times of negative electricity prices may lead to further cost savings. The utilization of temporary price fluctuations in the spot market and the demand-oriented provision of control power offer high additional revenue potential for flexible controllable technologies such as battery storage, biomethane as well as combined heat and power units. Finally, the determination of the long-term profitability of a virtual power plant still requires a full-scale cost–benefit analysis. For this holistic approach, the model results provide a reliable scientific basis.     

Distributed generation: An empirical analysis of primary motivators

What was once an industry dominated by centralized fossil-fuel power plants, the electricity industry in the United States is now evolving into a more decentralized and deregulated entity. While the future scope and scale of the industry is not yet apparent, recent trends indicate that distributed generation electricity applications may play an important role in this transformation. This paper examines which types of utilities are more likely to adopt distributed generation systems and, additionally, which factors motivate decisions of adoption and system capacity size. Results of a standard two-part model reveal that private utilities are significantly more inclined to adopt distributed generation than cooperatives and other types of public utilities. We also find evidence that interconnection standards and renewable portfolio standards effectively encourage consumer-owned distributed generation, while market forces associated with greater market competition encourage utility-owned distributed generation. Net metering programs are also found to have a significant marginal effect on distributed generation adoption and deployment.     

Adoption of solar home lighting systems in India: What might we learn from Karnataka?

Karnataka has been among the most successful markets for solar lighting systems (SLS) among Indian states. In order to understand the dynamics of systems adoption and operation, that have fostered market based adoption of solar lighting, we interviewed rural households from six districts that had purchased solar lighting systems using loans at market rates, the rural banks that provided loans and the solar firms that marketed the technology. We found that a large proportion of households in our sample were connected to the grid but chose to install solar lighting because they considered the power supply from the grid to be unreliable. Households in our sample reported savings on electricity costs and reduced kerosene usage for lighting. In addition to providing credit, banks also play a key role in ensuring good service and maintenance; the viability of the SLS market is thus critically dependent on the role that the banks play as intermediaries between consumers and solar firms in rural areas. Government programs should be carefully designed to match the incentives of firms, banks and consumers if the successes of the ‘Karnataka model’ are to be repeated and amplified.     

Appropriate technologies for large-scale production of electricity and hydrogen fuel

Appropriate technology for energy supply requires the use of the most effective energy resources and conversion technologies that will also result in the minimum acceptable impact upon the environment. A useful parameter for evaluation of energy resources for large-scale production of electricity and hydrogen fuel is the specific energy of the appropriate energy resources. Available resources for such large-scale applications must come from some mixture of renewable, fossil, and nuclear energy. Analysis is made of the appropriate use of solar energy, chemical combustion fuels, and nuclear energy on the basis of their specific energy. The results show that the most appropriate resources for large-scale production of electricity and hydrogen are low-specific solar photovoltaic and wind turbine energy for large numbers of distributed small-scale applications and high-specific nuclear energy for smaller numbers of large-scale applications.     

The economic benefit of short-term forecasting for wind energy in the UK electricity market

In the UK market, the total price of renewable electricity is made up of the Renewables Obligation Certificate and the price achieved for the electricity. Accurate forecasting improves the price if electricity is traded via the power exchange. In order to understand the size of wind farm for which short-term forecasting becomes economically viable, we develop a model for wind energy. Simulations were carried out for 2003 electricity prices for different forecast accuracies and strategies. The results indicate that it is possible to increase the price obtained by around £5/MWh which is about 14% of the electricity price in 2003 and about 6% of the total price. We show that the economic benefit of using short-term forecasting is also dependant on the accuracy and cost of purchasing the forecast. As the amount of wind energy requiring integration into the grid increases, short-term forecasting becomes more important to both wind farm owners and the transmission/distribution operators.