6 reasons why grid access charges should not be part of utility rates

Net energy metering (NEM) is one of the big financial benefits of installing solar panels, but states are starting to change their NEM policies — including introducing grid access charges. This editorial discusses why grid access charges could be another challenge for solar installers. Looking to build your installer business? Learn more about partnering with Panasonic. 

Utility rate design and metering architecture play an important role in sustaining the growth of renewable energy adoption. The favorable net energy metering policy, NEM 1.0, which compensates energy exports to the grid at the rate of imports, boosted renewable energy adoption but at the cost of cross-subsidies between technology adopters and non-adopters, in addition to utility revenue shortfalls.

To address equity and improved utility cost recovery, NEM 1.0 policy is witnessing immense jurisdictional revisions to successors that reduce the export rate to the so-called avoided cost rate, and consider time-varying rates (e.g., time-of-use) that can be highly differentiated. Among the most extreme proposed actions in successor NEM policies is the grid access charge, or GAC, under which adopters, for example, rooftop solar owners, pay a $/kW amount based on the capacity of their behind-the-meter distributed generation system. In this article, I list six reasons discussing why GAC cannot be part of a well-designed utility rate structure.

Multiple entities and jurisdictions, especially in states with higher adoption levels, have been actively researching for ways and tools to control the negative impacts of higher behind-the-meter DER penetration levels. A GAC has been proposed in multiple jurisdictions, including initially in the NEM 3.0 proposed decision in California, which would have charged $56/month to distributed generation adopters with a typical 7-kWdc system. The GAC component in California was later removed in a subsequent proposed decision. Other states, including New York, Missouri and Minnesota, have proposed a GAC component in their tariffs.

Why grid access charges are still being proposed?

GACs are admittedly a (1) very effective, (2) intuitive, (3) simple to apply and (4) easy to understand tool in forcing distributed generation adopters to pay their share toward the power grid’s fixed and demand costs.

1. GACs are effective because they can guarantee utility cost recovery, which is a major axiom in the principles of public utility rates set in 1961 by James Bonbright et. al — a cornerstone reference for utility policymakers. Unlike volumetric-rate-based cost recovery, GACs are independent of a customer's consumption patterns. Furthermore, GACs are efficient because they scale up with adopters who install larger distributed generation capacities and, therefore, shift more costs. Those adopters happen to be more affluent.
2. GACs are intuitive because they are levied to recover cost shifts directly from customers who caused them.
3. GACs are simple to apply, because utilities already have data on distributed generation capacity ratings and can easily assign a $/kWdc charge on qualifying customer facilities. This is not the case in some proposed alternative cost-shift-mitigation tools such as income-based fixed charges.
4. The simplicity of understanding GAC by utility customers conforms with the simplicity and understandability axiom of the principles of public utility rates. Given their rated distributed generation capacity, prosumers can precisely calculate how much they pay toward a GAC.

Having said that, GACs mitigate NEM subsidies in a very myopic fashion, without considering the broader and long-term effects of stalled rooftop solar adoption and failure in meeting states’ decarbonization goals. Below, I list six reasons illustrating why a GAC is a step toward a more regressive utility rate structure.

Six reasons why GACs should be eliminated from utilities' rates

1. GACs have a dual-effect on stalling rooftop solar adoption growth

GACs de-incentivize distributed generation-based bill savings, elongating payback times due to two reasons: i) direct reduction of monthly DER bill savings by $x/kWdc/month, and ii) devaluing self-consumed kWh through the reduced retail rate as a result of the improved-by-GAC cost recovery (lower retail rates lead to lower savings from solar). See here for a detailed analysis.

2. GACs do not encourage storage adoption

Unlike reducing the export rate, which behooves prosumers to install storage to locally consume the excess generation, imposing a GAC does not encourage pairing the renewable distributed generation with batteries. The intuition here is that prosumers cannot avoid paying the GACs by installing a storage device. Moreover, installing standalone storage, i.e., without solar, to circumvent GACs, makes the storage investment economically infeasible.

3. GACs do not encourage rational consumption and energy conservation

Unlike varying retail rates ($/kWh), levying demand charges ($/kW), or reducing export rates, GACs do not directly incentivize wiser energy consumption and more informed consumption decisions because the lump sum charge is independent of customer’s consumption. In fact, GACs diminish the value of consumption rationality, as they reduce the portion of the bill that is affected by consumption patterns.

4. GACs are prone to inequities

The value of the behind-the-meter distributed generation to the grid varies based on locational and temporal factors. A distributed generation system that is located at a congested line, or that produces power at times when the system is stressed is more valuable to the grid. GACs, however, levy a uniform charge on all prosumers regardless of their contribution to the grid.

Furthermore, GACs do not differentiate between efficient and inefficient distributed generation systems — in both cases, the customer will face the same $/kW installed capacity charge.

The primary reason for enforcing a GAC is to reduce the utility’s revenue shortfalls, hence cost shifts from adopters to non-adopters. In the following example, we show that GACs even fail to achieve this primary mission.

Let’s assume that we have two customers (see the table below) who face the same retail rate ($0.16/kWh) under NEM 1.0 (rate of imports = rate of exports). Assume customers A and B have identical consumption and have rooftop solar systems with 8kWdc and 5kWdc capacities, respectively. The table shows the consumption, generation, and bill of the two customers.

The table shows that, even though both PV systems inflicted the same utility revenue shortfall, customer A paid much more, through GACs, toward recovering that shortfall.

5. GACs reduce customer control over their energy bill

As the fixed charge portion of the energy bill increases, the value of rational energy consumption decisions diminishes. Prosumers cannot avoid paying GACs by reducing household consumption or installing energy-efficient devices. In fact, the only way to avoid paying GACs is to stop being a DER adopter.

6. GACs accelerate grid defection

The falling rooftop solar, particularly packaged rooftop solar+storage prices, in addition to the increasing GACs, strengthen the case for off-the-grid operation, which significantly reduces utility energy sales, causing  potentially higher retail prices for other customers. Also the fast grid defection rates that GACs may cause, raise the threat of an immaturely disintegrated grid driven by customer-led technology adoption, which might compromise the electric supply reliability of both on- and off-the-grid customers.

Conclusion

Although GACs are extremely effective in recovering utility fixed and demand costs and reducing cross-subsidies, they do so regressively, posing a serious risk to the sustainable diffusion of rooftop solar technology. Actions, such as slowly reduced compensation rates, more dynamic retail rates, and faster netting-frequency — the frequency at which the utility measures and bills customer’s net-consumption under net metering — should ensure higher economic efficiency, equity, and sustained adoption for a more distributed, more reliable and less costly future energy system.

Ahmed S. Alahmed is a PhD candidate in electrical and computer engineering at Cornell University with a focus on electricity markets, optimization, mathematical analysis and economics.

This article was written by Ahmed S. Alahmed from Utility Dive and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.