The Flip Side of Smart Grids

November 4, 2010  source: getsolar.com

The concept of a smart grid looks pretty good on its face – and upgrading the grid would definitely pay dividends for utilities and energy consumers alike. However, there are some potential pitfalls – as illustrated by a discussion at the VentureBeat GreenBeat 2010 conference this week.

A smart grid could boost distributed, localized solar by rewarding homeowners who install panels on their homes and feed the energy back into the grid. However, if this strategy becomes popular enough, there could be some unintended consequences.

As Nat Goldhaber, the managing director of renewable venture capital fund Claremont Creek Ventures, pointed out, “every house that goes off the grid is no longer somebody who the utility can charge.”

Too many homes turning to solutions and using the smart grid to their advantage means “the price of electricity has got to rise for all those who will not have solar. So in the end, the poor are going to pay the bill of keeping utilities alive.”

On the flip side, however, the rising cost of energy would create new incentives for utilities and individuals to invest in solar. In the shorter term, utilities and governments should make sure that smart grid initiatives are intelligently applied so that adoption doesn’t end up transferring costs to those still unable to afford it.

Reader Interactions

Comments

  1. There are several issues with this argument. The first is that the Smart Grid implies that these homes are on the grid, not off. Net metering, or selling back excess electricity, is already happening and is not dependent upon a smart grid at all. What a Smart Grid could potentially bring would the ability for these renewable energy sources to continue to produce during a larger outage – a situation that is not true at present. There are enough challenges to a Smart Grid that we do not need to add a false “us versus them” dichotomy to it.

  2. 1) Independently owned utilities are allowed by the PUC to earn a profit based on the total capital investment they have made in power pants, transmission and distribution (their “rate-base”).

    2) Approximately, this profit is paid by every rate payer: every home and business that uses electricity.

    3) Local solar generation (owned by you on your roof, for example) reduces the total amount of electricity sold by utilities.

    4) The profit still needs to be paid, now by fewer rate payers and for less electricity.

    5) Therefore the price MUST go up.

    6) Rich and middle class residential and profitable companies make up the vast majority of solar buyers.

    7) Therefore, non-solar users – which skews to poorer home owners, renters and less profitable businesses – will have to pick up the shortfall in sales with higher rates.

    QED

    I understand that all this is much more complicated. Even so, I am pretty sure it is correct even if we don’t want it to be.

    • Nat,

      I read your commentary regarding the cost of energy rising for legacy users once solar et al take revenue from the utilities. Bravo. I can’t agree more and have been taking arrows for echoing your position for some time. Many understand this (especially in the solar industry) but are loathe to admit it. It’s a very large boned skeleton…

      This is a problem that must addressed by the solar industry before it becomes an issue threatening subsidy. You are in Berkeley, I’m in Marin. When we take our > $500 monthly utility revenue out of the system, a case can be made that the poor people in Richmond will need to make up the slack in revenue. The further problem is the legacy utility customer (read poor rate payer/taxpayer) also pays a small premium so that rich homeowners can get a subsidy to near zero their electric bill — and raise their property value in doing so. We should probably not even bring up the very large number representing renters that pay in — but will never receive solar. And for their troubles, as you’ve pointed out, they can expect over time, their rates will rise.

      Utilities are publicly trade entities. They are not in the business of managing expectation with lower quarterly revenue.

      Thanks for your provocative thought put out into the mainstream.

      Because I’m a hedge fund manager, If I were to say it, I’d be accused of trying to manipulate markets. That said, I’m fully cognizant of the ramifications.

      Best regards,

      (posted on behalf of TJ from VA)

Reader Interactions

Comments

  1. There are several issues with this argument. The first is that the Smart Grid implies that these homes are on the grid, not off. Net metering, or selling back excess electricity, is already happening and is not dependent upon a smart grid at all. What a Smart Grid could potentially bring would the ability for these renewable energy sources to continue to produce during a larger outage – a situation that is not true at present. There are enough challenges to a Smart Grid that we do not need to add a false “us versus them” dichotomy to it.

  2. 1) Independently owned utilities are allowed by the PUC to earn a profit based on the total capital investment they have made in power pants, transmission and distribution (their “rate-base”).

    2) Approximately, this profit is paid by every rate payer: every home and business that uses electricity.

    3) Local solar generation (owned by you on your roof, for example) reduces the total amount of electricity sold by utilities.

    4) The profit still needs to be paid, now by fewer rate payers and for less electricity.

    5) Therefore the price MUST go up.

    6) Rich and middle class residential and profitable companies make up the vast majority of solar buyers.

    7) Therefore, non-solar users – which skews to poorer home owners, renters and less profitable businesses – will have to pick up the shortfall in sales with higher rates.

    QED

    I understand that all this is much more complicated. Even so, I am pretty sure it is correct even if we don’t want it to be.

    • Nat,

      I read your commentary regarding the cost of energy rising for legacy users once solar et al take revenue from the utilities. Bravo. I can’t agree more and have been taking arrows for echoing your position for some time. Many understand this (especially in the solar industry) but are loathe to admit it. It’s a very large boned skeleton…

      This is a problem that must addressed by the solar industry before it becomes an issue threatening subsidy. You are in Berkeley, I’m in Marin. When we take our > $500 monthly utility revenue out of the system, a case can be made that the poor people in Richmond will need to make up the slack in revenue. The further problem is the legacy utility customer (read poor rate payer/taxpayer) also pays a small premium so that rich homeowners can get a subsidy to near zero their electric bill — and raise their property value in doing so. We should probably not even bring up the very large number representing renters that pay in — but will never receive solar. And for their troubles, as you’ve pointed out, they can expect over time, their rates will rise.

      Utilities are publicly trade entities. They are not in the business of managing expectation with lower quarterly revenue.

      Thanks for your provocative thought put out into the mainstream.

      Because I’m a hedge fund manager, If I were to say it, I’d be accused of trying to manipulate markets. That said, I’m fully cognizant of the ramifications.

      Best regards,

      (posted on behalf of TJ from VA)