Electricity Companies

A Vaccine Against the Utility Death Spiral

In a previous blog post, I described the threat to utilities of the rise of distributed generation and how they could fend off this risk by highlighting the intrinsic value of their networks. As a cure to load defection, if not grid defection, I suggested monetizing the value the network brings to those same distributed energy resources that threaten it, as well as developing new services other than selling kWh. I also called on regulators to act.

Well, here is one way they could act: Enable time-varying rates. In a recent article, researchers at Lawrence Berkeley National Laboratory showed they could create a force opposite to the one driving the so-called utility death spiral when it comes to distributed solar. With more installed PV on roofs, net peak load will shift from the afternoon to early evening, right after sunset. This is known as the “duck curve” in the electric utility industry, because the load curves have the shape of a big belly (the afternoon) followed by a steep neck (early evening), and then a beak.

Utility book Schneider Electric

With abundant electricity flowing into the grid in the afternoon, prices should drop, while high demand in the evening would raise prices. Time-differentiated rates give prosumers real-time market prices for their electricity, and would thus discourage investment in solar panels for which ROI (Return On Investment)  is pushed back by the lower price of electricity during the time at which they produce the most (i.e., the afternoon).

In this way, the introduction of time-of-use pricing or real-time prices for electricity purchased from solar producers will counter-balance the trend of grid defection via a feedback effect. Time-varying rates can be the vaccine that makes utilities immune to the dreaded utility death spiral.

Schneider Electric utilities

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2 Responses
  1. Rudy Wodrich

    So, you are suggesting to change rate structures to further discourage investment by homeowners and businesses, in clean, safe, renewable energy? And, by association, not finding ways to push our utilities and society away from carbon based fuel dependency. I find this hard to believe coming from someone at Schneider Electric who tout being “green” as one of their core tenets. How does us help us “make the most of our common planet” as the Schneider CEO so often says. You should be ashamed and withdraw this post.

    • Xavier Moreau

      Hello Rudy,

      What I am suggesting is to change the rate structure to have prices that reflect the real cost and to encourage the right sized investment, in the right place, that maximize the social benefits of the overall system.

      For example, this could incentivize tilting some panels to the West, or on site consumption in the middle of the day (when PV output peaks, by shifting local loads) or storage.

      To be clearer, I should have written “Time-differentiated rates […] would thus discourage over investment in solar panels which ROI (Return On Investment) is solely based on injection into the network, whether the system needs it or not at that time.”

      Prices that reflect the real value of the kWh to the overall system would help us make the most of capital expenditure.

      Thanks for your comment, I hope this is clearer now,

      Regards,
      Xavier