Regulatory Issues for Distributed Generation
Open Access
- Author:
- Aldebot, Emanuel
- Area of Honors:
- Energy, Business, and Finance
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Andrew Nathan Kleit, Thesis Supervisor
Andrew Nathan Kleit, Thesis Honors Advisor
Seth Adam Blumsack, Faculty Reader - Keywords:
- Distributed Generation
Net Metering
Decarbonization
Cost-shifting - Abstract:
- The U.S. and global energy sectors are changing rapidly, considering concerns about climate change. Recent U.S. legislation provides substantial incentives for renewable energy, and individual states increasingly mandate and incentivize renewable technologies. A critical component of this movement toward renewable energy resides at the household level. A growing number of electricity consumers are installing solar panels on their rooftops and attempting to sell excess electricity from these panels back to the utility through the electric grid--a practice called net metering. A vast majority of states adopted net metering policies to build renewable infrastructure closer to electric customers, called distributed generation. Net metering's goal was to aid in developing a strategy for more renewable energy integration, encourage private investment, and harness the benefits distributed generation offers to the electrical grid. Although each state has different net metering laws, Pennsylvania found itself amid controversy over its net metering laws. Pennsylvania's net metering policy, called the Alternative Energy Portfolio Standards (AEPS) act, has a workaround that allows wholesale market participants (merchant generators) to qualify as a net metered facility, referred to as a customer-generator. The Public Utility Commission (PUC) of Pennsylvania addressed the workaround in an amendment restricting merchant generators from qualifying as customer-generator. The PUC based its concerns on the cascading financial impacts the workaround has on electric distribution companies (EDCs) and electric generation suppliers (EGSs). These financial impacts result in higher retail rates, disproportionately impact non-participating customers. However, solar developers claim that restricting the AEPS will unjustly stifle Pennsylvania's renewable growth. This action by the PUC prompted a legal case that addressed regulatory uncertainty faced by participants, EDCs, and EGSs when determining if a project should be approved (Sunrise Energy, LLC v. FirstEnergy Corp. and West Penn Power Company 2016). Also, it brought into question the impact the merchant generator workaround has on non-participating customers and the state's renewable growth goals. Ultimately, the courts decided to side with the original language of the AEPS and rejected the PUC’s concerns about the impact of the merchant generator workaround (“Alternative Energy Portfolio Standards Act” 2007). The AEPS policy has a 15-year schedule that stops increasing renewable participation after 2020 (Sunrise Energy, LLC v. FirstEnergy Corp. and West Penn Power Company 2016). If Pennsylvania wants to expand net metering participation, it will need to revise its compensation structure and reconsider the detrimental impacts of the merchant generator workaround. Arizona took a different approach toward its net metering policy. Arizona decided to end net metering to create an equitable system that can scale rooftop solar without cascading financial impacts to utilities and shifting Avoided Costs to non-solar-owning customers. The Arizona commission explored two alternative compensation methodologies: Avoided Cost and Resource Comparison Proxy. The Avoided Cost Methodology, uses a five-year forecasting to evaluate eligible costs and values of energy, capacity, and other services delivered to the grid from distributed generation” (Pyper 2016). The Resource Comparison Proxy (RCP) methodology uses a “five-year rolling average of a utility’s solar PPAs and utility-owned solar projects as a proxy for the valuation of distributed solar exports, to be reassessed every few years in each electric utility’s rate case” (Pyper 2016). These methods are a step to accurately compensate distributed generation and recognize its benefits to transmission, distribution, and generation.