The Nevada Public Utilities Commission’s decision to cut net-metering rewards for solar customers, as well as increase fixed charges, has caused at least a temporary exodus of solar companies from the state. But the question in my mind is whether having a special rate for solar customers is ever a good idea. With the exception of special low-income residential rates, most utilities create broad, nondiscriminatory residential rate classes in the name of customer equity. In my opinion, we should take a hard look at the implications of a new discriminatory rate for solar customers. And if we do establish a new rate for those customers, should we consider new rate classes for customers with other end-use technologies? What would be the likely impacts for customers and utilities?
For example, households with electric vehicles (EVs) would be a natural target for special time-differentiated rates, as they would discourage these customers from charging their EV batteries during on-peak hours. But should there also be a special rate for customers with home battery systems? Or backup generators? Or energy management systems? Each one of these “special” rates could provide a price signal to mobilize customers to change their behavior to benefit the entire grid system. However, these new rate classes would create a very complex and overlapping pricing system that customers couldn’t or wouldn’t respond to in the intended way, causing operational and financial headaches for utilities.
So for reasons of economic purity, I’m giving a big thumbs down to the Nevada decision. As we experience a rapidly expanding world of new controls and devices and smart appliances, conducting one-off rate design decisions about any emerging technology would create a serious quagmire and have infinite unintended consequences.
Wouldn’t the better solution be to get the pricing right in the first place, for all customers? How about building the incentives for solar, battery storage, smart thermostats, EVs, and any other new technology into one rate design? Then customers would be motivated to face their solar panels in a direction that optimizes system benefits instead of total kilowatt-hours. They would be rewarded for charging their EV batteries during nonpeak hours. And they would see cost savings by reducing peak demand using their energy management systems. If we got pricing right, we wouldn’t need special demand-response programs either.
While economically pure, this solution still brings us back to unintended consequences. Most customers would hate these complex rate designs. E Source just completed its Innovative Residential Rate Design and Pricing: Customer Preferences and Acceptance Multi-Client Study for the residential sector, and it’s clear that customers don’t come close to understanding the building blocks of utility rates, such as demand, load shapes, and block pricing. Many show a willingness to participate in various pricing options, but a large fraction would need automation to make it work in their lifestyle. We shouldn’t be surprised. We don’t want to know how our smartphones work; we just want to be able to use our apps.
So I just argued for universal dynamic pricing, and then convinced myself that customers would hate it. So what’s the alternative? I advocate for the basis of all retail pricing to be as close to real-time pricing as practical. As advanced metering infrastructure becomes more universal, this possibility is becoming more real. I suggest that utilities give customers a few options—and only a few—that are derivative products from the same basis. For example, customers who want no price differentiation would need to pay a premium for a third party, or the utility, to hedge the risk for them. This is already being done with products such as FlatBill at Georgia Power. E Source’s research shows that about 15 percent of customers would go for such an option. As another example, customers who own solar panels could choose between real-time net metering or again pay a premium for a third party, or the utility, to hedge their pricing for them. Similarly, customers who want to purchase a Tesla Powerwall could see the transparent real-time prices and have the battery’s smart system decide when to charge and discharge. Or their Nest thermostat could keep their homes comfortable while being aware of price levels all the time. E Source research shows that about 30 percent of customers would prefer an automated option for their devices to interact with electricity pricing, while another 35 percent or so would prefer interacting manually.
Utilities have a long road ahead in changing the fundamentals of retail pricing. Politics, economics, and consumer behavior don’t tend to play well together in the sandbox. But with the rapid evolution of solar as well as smart devices, we can’t create a patchwork of pricing riders and hope that everything works out well.
Learn more about how E Source is helping utilities tackle these types of solar-related customer-focused challenges through our Solar Strategy Service.