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Texas solar electricity

Solar Energy: Delivery Tariff Challenges

The five largest sources of renewable energy generation in Texas are wind power, landfill gas, hydroelectric power, biomass energy, and solar power.  Only three of these renewable energy sources, wind power, hydroelectric power, and solar power, do not involve combustion.  Interestingly, in a state known for its abundant sunshine and lack of high gradient rivers, Texas produced almost ten times more hydroelectric power than solar power during the period of 2004 through 2013.  This took place despite most of the state experiencing a severe drought from 2010 through 2013.  The good news is that solar energy, while still a small piece of the pie, is experiencing the highest growth rate among renewable energy technologies in Texas.

The cost of solar technology relative to wind power is largely the cause of solar power’s delayed growth in Texas.  The absence of state-backed incentives like those offered in California and other states has also contributed to the lag in solar installed capacity.  Wind is king in Texas, producing more than 200 times the electrical output of solar power in 2013, and is not conceding that position to solar anytime soon.  The one advantage that solar power holds over wind generation is its suitability for full market penetration.  Texas solar power generation occupies every possible range of installation from large utility-scale projects down to home rooftops.

Residential Solar Energy

Solar energy has established itself as a great way for retail electric customers to lower their electric bill.  As solar generation continues to gain in popularity with residential energy consumers, addressing a troublesome issue with transmission and distribution utility tariffs will become necessary.  The obvious shortcoming of solar generation is that it simply does not work in the absence of daylight.  Battery storage technologies are improving and getting cheaper.  However, most retail electric customers simply draw power from the grid the old-fashioned way when their solar array does not meet their electricity needs.  Utility tariffs recover the cost of maintaining the transmission and distribution system within each customer classification.  For residential customers, electricity usage (kWh) from the grid is the primary basis for delivery tariff charges.  Solar energy customers, therefore, pay a lower delivery charge than standard residential customers.

The issue lies in the fact that the size and number of transformers serving a neighborhood is not reduced simply because some homes may drop off the grid during daylight conditions.  Homes equipped with rooftop solar generation remain connected to the distribution system.  They need the power grid to meet their full energy requirements at any time, for any duration and with no notice. The fact or possibility that any number of energy consumers install rooftop solar arrays does not allow utility to modify the distribution system.  This is because the utility distribution system must still be able to serve the full electrical requirements of all homes for all hours regardless of daylight conditions.

For example, assume a rooftop solar array reduces a given customer’s power grid usage by 50%.  Under prevailing tariffs, the customer will be paying just over half of the delivery charge they would have otherwise paid without the solar array.  The utility recovers its cost to serve from the residential customer class as a whole through its rate cases.  If the utility’s wires and poles costs are the same, the utility is recovering all of its costs, and the solar power customer is paying less, then who is paying the difference?

Sharing the Cost

The cost is being borne disproportionately by residential customers who do not have rooftop solar systems.  Rephrasing, the retail energy customers who receive all of their power from the grid are ultimately subsidizing those who choose not to do so.  This is not equitable as the rooftop solar customers are equally responsible for the utility’s cost to build and maintain the distribution system.  Only a customer that completely drops off the grid and never requires balancing or backup power can argue otherwise.

Why is this not a hot issue at the Texas PUC?  As stated earlier in this article, the number of consumers utilizing solar power has not created a significant problem.  As rooftop solar system installations increase, utility delivery tariffs will need to address this issue to ensure that cost recovery incorporates this concept.  One possibility would be to phase-out tariffs with the variable component based entirely on usage.  Texas smart meter deployment is substantially complete.  Therefore, it is possible to design residential tariffs that incorporate demand as well as usage.  Demand-based delivery tariffs are a far more equitable means of allocating and recovering distribution costs.  This is why commercial and industrial delivery tariffs have relied upon them successfully for decades.  A primary obstacle to residential implementation has been metering and, with smart meters, this obstacle is no longer relevant.

About: Charlie Hewitt

Charlie Hewitt has more than 25 years of in-depth energy experience having served in executive and managerial roles at some of the largest retail energy providers in North America. His expertise covers a wide range of retail energy disciplines including pricing, contracting, risk management, and credit. He holds an MBA from UT Arlington, MA and BS degrees in geology from UT Austin, and was a TXU environmental research fellow.

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