The (renewable) electron economy, part 13

Renewable energy promotion policies: non-transparent or hidden 12

Tax credit policies

One of the ways the gap between market price and feasible price of renewable energy plants has been bridged is through tax benefits to investors. Just as the oil and gas industries have enjoyed various tax benefits to encourage investment in drilling, exploration, and production facilities, in the last couple decades investors in renewable generators have enjoyed either production or investment tax credits that contribute about 3 cents to the value of a kilowatt hour of renewably generated electricity for the producer. While these subsidies are set to expire at the end of 2008, most plans for new installations of renewable energy generators are contingent upon their renewal.

Tax credit policies have three drawbacks that make them politically vulnerable: they are largely invisible to the public, they are dependent upon the state of the federal budget and Washington politics, and they apply mostly to large corporate entities rather than small investors. A tax credit is paid via drawing tax revenues from other taxpayers and budgets, not necessarily from tax revenues from other parts of the energy sector. These credits have also been terminated a number of times over their checkered history, putting the renewable energy industry on a roller coaster. Finally, they are most attractive to large corporate investment vehicles and do not represent an incentive for small and medium investors to get into the renewable energy game.

Tax credits may have a role in promoting reinvestment in existing infrastructure, for instance by incentivizing the large railway companies to electrify their rights of way, as suggested by Alan Drake.

Renewable energy credits or green tags

Another method for trying to bridge the gap is selling a green power attribute separately from the power itself as a "green tag." Also called "Green Power Marketing," the idea is that companies and organizations can buy these tags to green their power mix, even though they are actually using the mix of power available in their area at their facilities. This is the closest one can get to a "free" market in renewable energy (credits) and those who are enamored of unregulated market mechanisms favor this type of approach.

Studies have found that REC schemes only have a mild stimulative effect and are a relatively expensive means of promoting renewable energy; there are suggestions that the traders of these credits are the prime beneficiaries of an REC system. Furthermore, RECs stimulate mostly large onshore wind farms as green power marketers are only looking for a "green" attribute at the lowest cost; to build the renewable electron economy, we will need a more diverse set of renewable generators.

Net metering

For small renewable generators that operate on the premises of a power consumer, power companies allow the customer to "run their meter backwards," crediting the customer for the full retail cost of the electricity they generate on premises. While this may appear to be simple and fair compensation to the customer/owners of the generator, the (hidden) subsidy for net metering comes from other power users who compensate the power utility for lost profits from the sale of electricity to those self-generating customers. Another limitation of net metering is the loss of revenue for over-sizing the on-site generator and overproducing clean electricity above and beyond usage on-site.

Next: transparent renewable energy promotion policies.

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  1. Russ Posted 5:44 am
    16 Sep 2008

    I don't quite follow this part

    Net metering
    For small renewable generators that operate on the premises of a power consumer, power companies allow the customer to "run their meter backwards," crediting the customer for the full retail cost of the electricity they generate on premises. While this may appear to be simple and fair compensation to the customer/owners of the generator, the (hidden) subsidy for net metering comes from other power users who compensate the power utility for lost profits from the sale of electricity to those self-generating customers. Another limitation of net metering is the loss of revenue for over-sizing the on-site generator and overproducing clean electricity above and beyond usage on-site.
    I thought running the meter backwards is when the on-site renewable generator is running a surplus and the utility buys that electricity (crediting the customer vs. his elctricity bill), as they are required by law to do here in NJ and in some other states.
    I hadn't heard before of the green tags. That sounds like carbon offsets - can be moderately beneficial if done right, but isn't going to be a major part of the solution, and can easily be abused.

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  2. Duggles Posted 8:34 am
    16 Sep 2008

    I second Russ's comment.I, too, don't really understand what you're saying here Michael.
    Here in Michigan (from http://www.dsireusa.org):
    Any customer net excess generation (NEG) is carried over to the customer's next bill on a monthly basis, at rates which vary by utility. A 2007 PSC Staff Report summarizes the different billing methods currently used by state utilities. Any NEG remaining at the end of a 12-month billing cycle is awarded to the utility, and the value of these credits will be used to offset program costs. Customer-generators retain ownership of all renewable-energy credits (RECs) associated with the generation of electricity.
    So in regards to the "loss of revenue" in Michigan, is it the customer-generator who is losing revenue?
    Furthermore, is the (hidden) subsidy for net metering com[ing] from other power users who compensate the power utility for lost profits from the sale of electricity to those self-generating customers

    just a fancy way of saying that the customer-generator is not buying electricity from the utility, so the utility doesn't make a profit on the kWh used?

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  3. KenG Posted 12:39 pm
    16 Sep 2008

    Net MeteringMichael has it pretty much correct. What Russ and Duggles are missing is the differences between wholesale and retail electricity and the intrinsic value of dispatchable power. The electric "rate" is generally over twice the actual value of the power generated. The difference is the cost of the transmission and distribution systems and the administrative costs of the system. If you self generate power and have net metered excess, you are providing none of that infrastructure and yet you are getting paid for it. In the case where you generate enough power to completely offset what you use from the grid, you will pay nothing. However, the utility still has the investment and cost of supplying power to you, metering the usage, etc. Even worse, the utility has to take the excess power you generate, even though it is likely supplied at a low demand period when they really don't need and it and potentially have to operate their units uneconomically.
    Net metering is a real cute selling point when only 0.5% of the users are generators. The system will fall apart if self generation becomes significant.

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  4. Biodiversivist's avatar

    Biodiversivist Posted 1:50 pm
    16 Sep 2008

    I'm with Russ and DugglesWithout net metering, residential solar is non-viable. You can forget about it.
    Also, nobody mentioned the investment made by the home owner. That is an investment the utility didn't have to make and it won't have to maintain it either.
    Ken is right that utilities today are not designed to deal with a lot of residential solar. They will bitch and squirm at first but as long as citizens force politicians to stand their ground against lobbying efforts they will eventually find ways to accommodate it profitably.
    Peak demand for power often coincides with peak air conditioning needs which often coincides with peak sun. In areas where this tends to be true, locally generated power may eventually prove especially profitable for power companies.
    Utilities will never change the status quo without incentives to do so. Net metering will force them to get off their asses and do some innovating.

    In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world

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  5. Michael Hoexter Posted 2:54 pm
    16 Sep 2008

    I'm surprisedAs a frequent anonymous poster, here, biodiversivist, I'm surprised you don't know about feed in tariffs or Renewable Energy Payments.  They stimulate PV deployment without net metering and are much more effective as a standalone incentive policy.  You will learn more in the next installment.  It is true that rooftop PV is still relatively expensive compared to other Renewable Energy Payments but if we want to prioritize and stimulate the building of small distributed generation it does cost more money.
    Net metering is only tenable as a niche policy and a supplement to other stimulative policies at the moment for PV.  

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  6. Biodiversivist's avatar

    Biodiversivist Posted 3:11 pm
    16 Sep 2008

    I'm not anonymous MichaelThat's just my online moniker.
    I'm a big fan of feed in tariffs. Have said so on the blog many times. From Wikipedia:
    "The introduction of FIT is usually preceded by legislation for net metering ...
    I have not seen anything in your posts to date that has not been discussed in this blog in great detail already. Most commenters here are already familiar with the topics you are presenting, and in many cases, know much more about them than you and I.

    In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world

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  7. wreckenhavoc Posted 4:03 pm
    16 Sep 2008

    Wowsa Part 13Well, cough there are always a lot of fans of tariffs, until someone suggests naming the tariff after you. lol
    Anway, if solar isn't viable because we can't slap a meter on it and charge you by the kwh, then how about we flat fee it and everybody pays a flat $2000 a month and they get free solar?  
    I could sell this in Chicago.

    We have a machine.

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  8. Biodiversivist's avatar

    Biodiversivist Posted 11:12 pm
    16 Sep 2008

    Michael, your last paragraphjust wasn't very clear. Four of us were under the impression that you don't favor compensating solar panel owners for the excess energy they generate when in fact you think they should be paid a premium for it.
    Your posts are a good summary of what needs to be done. There hasn't been a lot of dissent in the comments because you've done your research and have covered most bases pretty thoroughly.

    In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world

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  9. Duggles Posted 2:25 am
    17 Sep 2008

    To KenG:Actually, the way the local gas & electric does it where I live, you only get credited for the generation portion of your bill, and the credits reset to zero every 12 months.  You still have to pay for the service and transmission costs of the power provided to you, and you must size your system to not exceed your needs.
    Additionally, you have to pay all costs relating to the installation of new meters, and the utility owns and maintains them.  Assumedly, this is to prevent unscrupulous customer-generators from tampering with the meters.
    I think it's also possible to do it in such a way that prevents any excess energy from flowing back into the grid.
    Personally, it all seems pretty useless for a typical homeowner.  If I ever install PV solar, I'm not even going to bother with an inverter, let alone grid tie-in.

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  10. KenG Posted 3:47 am
    17 Sep 2008

    Net Metering?What Duggles describes isn't net metering exactly. It's more like being a qualified wholesaler. I think this supports the overall conclusion that when self generated power is valued at it's true value to the customer (in this case the utility) it's hardly worth the effort for a home generator.

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  11. Duggles Posted 5:58 am
    17 Sep 2008

    Oh, okThank you, KenG.  I guess it's sort of like, "not all that glitters is gold", but in this case it's "not all that's called net metering is net metering".

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  12. Biodiversivist's avatar

    Biodiversivist Posted 3:46 am
    18 Sep 2008

    True that, KenResidential PV does not make money for a home owner. It is an expensive way to get electricity. People putting PV on their houses are not doing it to save money (especially in Seattle). If saving money were the only thing motivating people, we would all live in trailers and ride bikes or walk. Humans are driven by urges beyond just putting food in our bellies and  a roof over our heads.
    Only the very wealthy could afford a car when they first arrived. If it were not for consumers wanting them and the market providing them at affordable prices, we wouldn't have cars, which come to think of it might be a good thing.
    As with fuel for cars, electricity is going to get more expensive. That can be offset by efficiency. A Prius lets the cost of gas double without feeling a pinch. PV costs more but if combined with a home that cuts use in half, it wouldn't.
    It costs to buy a Prius but they are also a status symbol. Ditto for PV.
    Hypothetically speaking, if most of the houses in a state had PV roofs, the utility would have to accommodate them. They couldn't continue to burn coal without customers paying for that coal. Utilities won't change the status quo without strong motivation to do so and will resist change given the choice. That's just the way bureaucracies are.
    Consumers should be telling utilities what they want instead of the other way around. It is analogous to consumers telling a car company what they want. Getting the carbon out of power generation is going to be expensive and that cost has to be offset with efficiency.
    Without net metering, PV would pointless, especially in Seattle. Feed in tariffs may not be necessary, but net metering certainly is.

    In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world

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