POWER February 2013 - 46

POWER VIEWS
Getting Distributed Energy
Resources Right
Rick Tempchin, executive director, Retail Energy Services for the Edison Electric
Institute, talks about the impact of distributed energy resources on utilities
and their customers.
T
he electric power industry is transforming
the nation's electric distribution
system. We're replacing aging
electromechanical technologies with an
advanced digital information and telecommunications
network. As we do so, we're
creating an electric superhighway for the
21st century, one that's more reliable,
secure, and capable of meeting the rapidly
changing energy needs of customers.
POWER Editor-in-Chief Dr. Robert Peltier,
PE talked with Rick Tempchin, the Edison
Electric Institute's executive director for
Retail Energy Services, who addressed the
challenges of integrating distributed energy
resources into today's electric grid. Questions
are presented as subheads; Tempchin's
responses follow.
What are distributed energy
resources?
Among the many features that an advanced
grid will offer will be a greater capability
for electricity and information to move two
ways: from the utility to the consumer-
as it always has-and from the customer
back to the utility. To take advantage of
this two-way capability, more utility customers
are choosing to generate a portion
or even all of their electricity using distributed
energy resources (DERs).
DERs can include rooftop solar panels,
microturbines that provide auxiliary or
backup power for a building, fuel cells,
and other forms of electricity generation.
DERs can also include energy storage systems,
and even microgrids-a small-scale
version of a utility's centralized electricity
system.
A number of factors are encouraging the
growth of DERs, including falling costs of
certain DER technologies-particularly solar
photovoltaic (PV), smaller wind, and natural
gas technologies-today's low natural gas
prices, an increasing desire to improve reliability,
as well as a host of incentives for
these technologies from state and federal
governments.
46
What are the important public
policy issues concerning DER
deployment?
The growing use of DERs is creating opportunities
and challenges for electric utilities. Integrating
increasing amounts of DERs needs to
be done in a way that ensures that system reliability
is maintained. Because existing state
regulatory and incentive mechanisms mirror
the needs and workings of that system, it's
also important that increasing levels of DERs
are accommodated in a way that is fair to customers
with-as well as without-DERs.
The following four issues are particularly
critical to ensuring that DERs are developed
in a reliable, fair, and cost-effective manner
that benefits all electric utility customers.
Integration Costs. To ensure that the grid
remains safe and reliable and delivers quality
power to all customers, the grid operator must
model, monitor, and control these new DERs.
These integration costs are essential for operating
the system without overloading circuits,
causing voltage regulation and power quality
problems, or jeopardizing the safety of utility
workers and the public. Because many
DERs are wind and solar PV technology-
and variable in nature-integration costs are
likely to rise as the utility must accommodate
fluctuating levels of generation from what
could become a significant number of these
resources in its service territory.
Although the initial costs of integrating
DERs into the distribution grid may be
known, the systemwide integration costs that
may occur later often aren't readily available.
The final cost associated with DER integration
is dependent on the level of DER market
penetration, particularly with respect to
systemwide grid modernization costs. Final
costs may also far exceed the initially defined
costs. Regulators and policymakers should be
aware that the total cost of integrating DERs
may have significant customer impacts over
the long term.
Cost Shifting. Any incentives to encourage
DERs must be fair and appropriate for all utility
customers. Certain incentives, such as net
www.powermag.com
metering, have the potential to shift costs from
customers who own DERs to those who don't.
The definition of net metering varies
greatly from state to state, but in general, net
metering programs allow DER customers to
run their meters backward and get a credit
for any generation they produce in excess of
their own needs. As of July 2012, 43 states
and the District of Columbia had a net metering
policy in place.
In many of these states, DER customers
can earn credit at the utility's full retail rate
for any electricity they sell back. In addition,
power that these customers produce in excess
of what they need during a billing cycle
results in credits at the full retail rate that
can be applied against their bill during later
billing cycles when they're not producing
enough power to meet their own needs.
Net metering shifts costs because the full
retail rate that DER customers receive for
selling their power back to their utility includes
the fixed costs of the utility's distribution
network-such as wires and customer
service costs-costs that the utility still must
recover. In cases where the utility also supplies
power to the customer, the fixed costs
include the costs of generating capacity built
to serve the customer and that is used to provide
backup service.
Because DER customers no longer contribute
to fixed costs to the extent that they
meet their own power needs, a utility's remaining
customers face higher rates to pay
for those fixed costs.
In addition to net metering, many states
are offering other incentives, including rebates,
tax incentives, performance-based
incentives, low-cost financing, and feed-in
tariff programs. California, for example, is
providing $1.9 billion in solar subsidies over
the next 10 years. Again, these subsidies benefit
DER customers, but are they fair to customers
without DER?
Of the 43 states with net metering policies
in place, 14 states also have some form of
" virtual net metering, " which essentially allows
credits to be applied from facilities with
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POWER February 2013

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