Last week Steve LeBlanc AP writer authored an article about Massachusetts Homeowners being able to sell their excess power back to the utilities at a “retail” rate rather than the historical wholesale rate. For commercial/industrial customers or homeowners who have made the investment in some form of local generation (e.g. wind or solar) this could be quite a boon. However, it will be interesting to see how this all plays out.

Feed in tariffs (tariffs for excess electricity that is feed back into the grid) have been evolving for some time. In Germany, feed in tariffs are well established and help to explicitly define the return a consumer can expect for their excess electricity. This helps a consumer determine their payback period for investments in local generation. Massachusetts will be making a big step forward in the US with their new program which allows property owners to earn credits on their electricity bills. California has open access for C&I customers at the distribution level. However, some states have seen this as a political hot potato and do not yet have such legislation.

It is interesting to consider the implications of net metering credits that pay the consumer the time based locational retail price. Consider the case where sufficient rooftop solar generation and/or wind exist to meet the needs of all the consumers. While this scenario will not happen any time soon, the implication to the utility is zero revenue during that period. The utility business is still ongoing, but with no energy usage to bill to customers! Granted the price credited is the same price a consumer would have to pay for the next KW at the specific location on that particular time of day. But in this scenario, the utility is not being compensated for the energy balancing (matching load and generation) nor for usage of the wires for power distribution (delivery to that location).

Now consider the same scenario, but with a weather event where 90% of the renewable generation falls off in a 5 minute period. This may seem unlikely but we now have examples of this for both wind and solar. The PUC firmly expects the utility to pick up the load reliably – with no outages and no power quality impacts. The implication to the Utility is not only spinning reserves to cover part if not all of the potential loss of renewables, but also the capacity to deliver and the capability to balance all the distributed loads and the replacement generation.

The utility will also be called upon to deal with dynamic voltage and var control in support of balanced operation with renewables. If excess generation is applied at the distant end of a distribution feeder (residential solar or wind) and the utility does not adjust the upstream transformer tap settings, the voltage on the distribution feeder will rise, and potentially significantly. Here again, the PUC will firmly expect the utility to respond to the new generation and maintain the power quality and reliability. Fast charging electric vehicles will have similar but opposite affects.

The utility is tasked with providing quality of service and reliability capabilities, but in the original scenario, would receive little or no revenue for the services. This may slow the advancement of the Smart Grid. An alternative may be to figure out how to value these quality of service capabilities and pay the utilities a capacity to serve fee for every grid connected consumer. Then the utility would be compensated for continuing to drive for reliability, regardless of the source of the energy. This model would also set the stage for distribution level open access and distribution level energy balancing electricity markets – where distribution level locational marginal prices truly drive customer behavior real-time.

It will be interesting to watch as various pricing programs are adopted, ranging from wholesale compensation, to full retail compensation, to flat rate feed-in tariffs, and many other alternatives as well. Clearly the complexities of balancing the various constituents with the physics of electricity delivery will make for many legislative designs before all is said and done. The key will be recognizing and valuing the utility services while still enabling the autonomous behavior and innovation that will fuel the next era of the Smart Grid. – Larry Cochrane, Senior Technology Strategist, Microsoft Worldwide Utilities