5 ms·

Hey, as someone who used to work for an energy utility looking at setting up a solar market place, there's some info you're missing: - The wholesale price is t

Hey, as someone who used to work for an energy utility looking at setting up a solar market place, there's some info you're missing: - The wholesale price is the cost of generating electricity. The retail price includes the cost of serving the customer, i.e. billing. Sure, there are less transmission costs, but in New Zealand they only play about 20% of the retail cost. - Also, just because midday rates of electricity are high, those high rates tend to subsidise the cost of running the network when rates are low (i.e. other times). Power Stations don't come for free. People want security of supply, but then to be able to poach from the most profitable parts of the day?

dpierce9 11y ago
I don't know why your first point is relevant, the marginal cost of billing is incredibly minute. The second point is interesting but calling it poaching is tendentious. No one is saying power stations, transmission lines, distribution networks, voltage support, frequency regulation, or any of the other myriad features of modern electricity grids are free. The point is how do you distribute the costs of those goods fairly (i.e. in proportion to use). Utilities are saying netmetering is unfair because it results in stranded costs that must be born by non-solar customers and I am saying that they are overestimating their stranded costs to the extent that they don't count the increase in the efficiency of their ability to serve load (because solar gen is basically already made and delivered electricity they bill for but don't have to buy). It is a really really hard question to know by how much they are overestimating stranded costs. IMO this is about aggregate demand and the stranded cost thing is a red-herring.
- WaylonKenning 11y ago
  Sources please! There's more to retail than just billing. Off the top of my head there's advertising, acquisition of customers, creation of plans/pricing/campaigns, getting consumption information (which in New Zealand is from 50+ local distribution companies, each with their own formats), there's purchasing from the wholesale market in such a way that you're not losing money all the time, there's setting up a call centre to service those customers, there's meeting regulatory requirements such as a government disputes process, those are just the ones I can think of sitting here. And I'm not saying that those costs should be massive, I'm just saying those costs exist. Someone must pay for them. Considering I've observed that the margin on retail electricity customers is not much (like $2K of customer lifetime value over 10 years), it's not like in New Zealand electricity companies are rolling around in cash from profit per customer, it's really just a volume game (the company I worked for had 430,000 retail customers). BTW, the value chain in energy from generation to transmission to meter to cash is full of lots of participants. In New Zealand, the generator, wholesaler, retailer, national distributor, and local distributor are all separate entities. To say "Utilities ... are overestimating their stranded costs to the extent that they don't count the increase in the efficiency of their ability to serve load" ignores the reality of this value chain. At best, this really only benefits the local distributor.
  - dpierce9 11y ago
    I was coming at it from a US perspective. In the US retail is still dominated by natural monopolies with service areas and captured customers so those costs are low. There is a huge push toward the kind of retail competition you are talking about of course, however, while the growth in the sector is huge the vast majority of customers still behave as captives. https://ei.haas.berkeley.edu/research/papers/WP252.pdf https://ei.haas.berkeley.edu/research/papers/WP252.pdf As for the value chain you are right that I am simplifying but we are on an internet comment board not writing a white paper. However, the simplification doesn't matter. Whether it is vertically integrated utilities or deregulated and unbundled electricity service, the point still stands that stranded costs are overestimated to the extent that they don't account for the fact the netmetered kWhs tend to be high value, are resold at retail, and do not have to be purchased or delivered by the seller. Adding more middleman or more costs just adds accounting wrinkles (and which I think are inappropriate for the forum). If your point is that the harm is caused by a reduction in aggregate demand then that is a completely different argument.
  - aunty_helen 11y ago
    >Sources please! Asking for sources for a rebuttal to your opinion is a bit underhanded given that you provided none to backup your claim. And no, your comment isn't more than an opinion because you've worked in the industry. An informed opinion sure but asking for someone to provide sources to their argument would be a bit hypocritical unless you are going to step up as well.
    - WaylonKenning 11y ago
      I enjoy a good internet discussion! So the topic of debate is whether its fair to charge a retail price for solar buybacks, or a wholesale price. I argued that a retail price is unfair, because energy utilities have a bunch of retail costs, of which billing is one of. The counter argument is that billing is a minute component of the retail cost. You've suggested that I have an informed opinion, but need sources to back up my argument. Contact Energy have a management paper that discusses energy costs. A definition of Netback from Contact Energy (2015) is: Netback is calculated by deducting the network, meter, levy and cost to serve costs from customer tariffs. This enables the performance of the retail channels to be measured without using an energy cost. The netback is meant to cover, inter alia, the cost of energy, capital return, risk margin and a retail margin. Cost of Energy was $994M, while Cost of Transmission and Metering was $621M, and Cost to Serve (such as billing) was $118M for Contact Energy for the year ending 30 June 2015 (Contact Energy, 2015). The remainder, as EBITDAF was $484M. As you can see, $118M for Cost to Serve is 11.8% of the Cost of Energy. This doesn't change with solar buybacks. The cost of energy is from a different source (your personal solar panels), but there's still costs of transmission and metering, cost to serve, and depending on the utility you connect to, some sort of EBITDAF (unless they're a not for profit). So that's $0 (your solar panels) + $621M (transmission/metering) + $118M (retail/billing) + $484M (earnings before income, tax, depreciation, amortisation, and changes in fair value of financial instruments). Do check out McNicol (2013) for an interesting article on this. tl;dr - Electricity networks are expensive, and the cost of energy is about half the total costs of running the system. Who pays for that, if the utility has to pay the retail rate to you because you're using solar panels? References: Contact Energy. (2015). Management discussion of financial results for the year ended 30 June 2015. Retrieved 9 February 2016 from https://www.contact.co.nz/cenergymedia/contactenergy/files/pdfs/corporate/cen-fy15-management-discussion.pdf https://www.contact.co.nz/cenergymedia/contactenergy/files/p... McNicol, H. (2013). Are solar energy systems worth the cost? Retrieved 9 February 2016 from http://www.stuff.co.nz/the-press/business/the-rebuild/9329703/Are-solar-energy-systems-worth-the-cost http://www.stuff.co.nz/the-press/business/the-rebuild/932970...
JumpCrisscross 11y ago
> just because midday rates of electricity are high, those high rates tend to subsidise the cost of running the network when rates are low Prices should be quoted appropriately. Frankly, grid operators should be market makers, continuously quoting bids and asks they'd be happy to buy and sell power at. If the mid-day rate subsidizes the evening, maybe the latter needs to be higher.
- dpierce9 11y ago
  They kind of are like this: there are real-time electricity markets in the US. One issue is that a lot of demand is inelastic because price signal transmission is very hard. Grandmas don't want to be adjusting their Air Conditioner on a second-by-second basis due to price fluctuations. Utilities effectively buffer this movement by aggregating demand and purchasing enough to meet that demand.
  - toomuchtodo 11y ago
    > Grandmas don't want to be adjusting their Air Conditioner on a second-by-second basis due to price fluctuations. Utilities effectively buffer this movement by aggregating demand and purchasing enough to meet that demand. This is how Nest makes money. They serve as demand response. You sign up to get a credit on your electric bill, and when demand is extremely high, a utility can signal to Nest to reduce demand for 15 minute increments; its cheaper than firing up a peaking natural gas plant. https://nest.com/energy-solutions/#demand-response https://nest.com/energy-solutions/#demand-response
kwhitefoot 11y ago
Sounds like a case for splitting the delivery cost from the generation cost. Here in Norway I can buy my electricity from an generating company but I also pay the local company for the cost of transmission plus a fixed fee for the connection. This means that the basic infrastructure gets paid for even if I use no electricity at all.
- dragontamer 11y ago
  This is true in many states actually. (This model is definitely true in the state I live in) Nevada specifically seems a bit messed up right now. Politics will have to duke it out... I am not actually on the Solar side of things.
thescriptkiddie 11y ago
You seem to be missing the fact that utilities charge a "grid connection fee" to cover the cost of overhead like billing. In my case, that fee accounts for half of my bill. You're also failing to consider that solar installations remove load from the grid, allowing utilities to put off upgrades that would have otherwise been inevitable.

dpierce9 11y ago

I don't know why your first point is relevant, the marginal cost of billing is incredibly minute. The second point is interesting but calling it poaching is tendentious. No one is saying power stations, transmission lines, distribution networks, voltage support, frequency regulation, or any of the other myriad features of modern electricity grids are free. The point is how do you distribute the costs of those goods fairly (i.e. in proportion to use). Utilities are saying netmetering is unfair because it results in stranded costs that must be born by non-solar customers and I am saying that they are overestimating their stranded costs to the extent that they don't count the increase in the efficiency of their ability to serve load (because solar gen is basically already made and delivered electricity they bill for but don't have to buy). It is a really really hard question to know by how much they are overestimating stranded costs. IMO this is about aggregate demand and the stranded cost thing is a red-herring.

WaylonKenning 11y ago
Sources please! There's more to retail than just billing. Off the top of my head there's advertising, acquisition of customers, creation of plans/pricing/campaigns, getting consumption information (which in New Zealand is from 50+ local distribution companies, each with their own formats), there's purchasing from the wholesale market in such a way that you're not losing money all the time, there's setting up a call centre to service those customers, there's meeting regulatory requirements such as a government disputes process, those are just the ones I can think of sitting here. And I'm not saying that those costs should be massive, I'm just saying those costs exist. Someone must pay for them. Considering I've observed that the margin on retail electricity customers is not much (like $2K of customer lifetime value over 10 years), it's not like in New Zealand electricity companies are rolling around in cash from profit per customer, it's really just a volume game (the company I worked for had 430,000 retail customers). BTW, the value chain in energy from generation to transmission to meter to cash is full of lots of participants. In New Zealand, the generator, wholesaler, retailer, national distributor, and local distributor are all separate entities. To say "Utilities ... are overestimating their stranded costs to the extent that they don't count the increase in the efficiency of their ability to serve load" ignores the reality of this value chain. At best, this really only benefits the local distributor.
- dpierce9 11y ago
  I was coming at it from a US perspective. In the US retail is still dominated by natural monopolies with service areas and captured customers so those costs are low. There is a huge push toward the kind of retail competition you are talking about of course, however, while the growth in the sector is huge the vast majority of customers still behave as captives. https://ei.haas.berkeley.edu/research/papers/WP252.pdf https://ei.haas.berkeley.edu/research/papers/WP252.pdf As for the value chain you are right that I am simplifying but we are on an internet comment board not writing a white paper. However, the simplification doesn't matter. Whether it is vertically integrated utilities or deregulated and unbundled electricity service, the point still stands that stranded costs are overestimated to the extent that they don't account for the fact the netmetered kWhs tend to be high value, are resold at retail, and do not have to be purchased or delivered by the seller. Adding more middleman or more costs just adds accounting wrinkles (and which I think are inappropriate for the forum). If your point is that the harm is caused by a reduction in aggregate demand then that is a completely different argument.
- aunty_helen 11y ago
  >Sources please! Asking for sources for a rebuttal to your opinion is a bit underhanded given that you provided none to backup your claim. And no, your comment isn't more than an opinion because you've worked in the industry. An informed opinion sure but asking for someone to provide sources to their argument would be a bit hypocritical unless you are going to step up as well.
  - WaylonKenning 11y ago
    I enjoy a good internet discussion! So the topic of debate is whether its fair to charge a retail price for solar buybacks, or a wholesale price. I argued that a retail price is unfair, because energy utilities have a bunch of retail costs, of which billing is one of. The counter argument is that billing is a minute component of the retail cost. You've suggested that I have an informed opinion, but need sources to back up my argument. Contact Energy have a management paper that discusses energy costs. A definition of Netback from Contact Energy (2015) is: Netback is calculated by deducting the network, meter, levy and cost to serve costs from customer tariffs. This enables the performance of the retail channels to be measured without using an energy cost. The netback is meant to cover, inter alia, the cost of energy, capital return, risk margin and a retail margin. Cost of Energy was $994M, while Cost of Transmission and Metering was $621M, and Cost to Serve (such as billing) was $118M for Contact Energy for the year ending 30 June 2015 (Contact Energy, 2015). The remainder, as EBITDAF was $484M. As you can see, $118M for Cost to Serve is 11.8% of the Cost of Energy. This doesn't change with solar buybacks. The cost of energy is from a different source (your personal solar panels), but there's still costs of transmission and metering, cost to serve, and depending on the utility you connect to, some sort of EBITDAF (unless they're a not for profit). So that's $0 (your solar panels) + $621M (transmission/metering) + $118M (retail/billing) + $484M (earnings before income, tax, depreciation, amortisation, and changes in fair value of financial instruments). Do check out McNicol (2013) for an interesting article on this. tl;dr - Electricity networks are expensive, and the cost of energy is about half the total costs of running the system. Who pays for that, if the utility has to pay the retail rate to you because you're using solar panels? References: Contact Energy. (2015). Management discussion of financial results for the year ended 30 June 2015. Retrieved 9 February 2016 from https://www.contact.co.nz/cenergymedia/contactenergy/files/pdfs/corporate/cen-fy15-management-discussion.pdf https://www.contact.co.nz/cenergymedia/contactenergy/files/p... McNicol, H. (2013). Are solar energy systems worth the cost? Retrieved 9 February 2016 from http://www.stuff.co.nz/the-press/business/the-rebuild/9329703/Are-solar-energy-systems-worth-the-cost http://www.stuff.co.nz/the-press/business/the-rebuild/932970...

JumpCrisscross 11y ago

> just because midday rates of electricity are high, those high rates tend to subsidise the cost of running the network when rates are low Prices should be quoted appropriately. Frankly, grid operators should be market makers, continuously quoting bids and asks they'd be happy to buy and sell power at. If the mid-day rate subsidizes the evening, maybe the latter needs to be higher.

dpierce9 11y ago
They kind of are like this: there are real-time electricity markets in the US. One issue is that a lot of demand is inelastic because price signal transmission is very hard. Grandmas don't want to be adjusting their Air Conditioner on a second-by-second basis due to price fluctuations. Utilities effectively buffer this movement by aggregating demand and purchasing enough to meet that demand.
- toomuchtodo 11y ago
  > Grandmas don't want to be adjusting their Air Conditioner on a second-by-second basis due to price fluctuations. Utilities effectively buffer this movement by aggregating demand and purchasing enough to meet that demand. This is how Nest makes money. They serve as demand response. You sign up to get a credit on your electric bill, and when demand is extremely high, a utility can signal to Nest to reduce demand for 15 minute increments; its cheaper than firing up a peaking natural gas plant. https://nest.com/energy-solutions/#demand-response https://nest.com/energy-solutions/#demand-response

kwhitefoot 11y ago

Sounds like a case for splitting the delivery cost from the generation cost. Here in Norway I can buy my electricity from an generating company but I also pay the local company for the cost of transmission plus a fixed fee for the connection. This means that the basic infrastructure gets paid for even if I use no electricity at all.

dragontamer 11y ago
This is true in many states actually. (This model is definitely true in the state I live in) Nevada specifically seems a bit messed up right now. Politics will have to duke it out... I am not actually on the Solar side of things.

thescriptkiddie 11y ago

You seem to be missing the fact that utilities charge a "grid connection fee" to cover the cost of overhead like billing. In my case, that fee accounts for half of my bill. You're also failing to consider that solar installations remove load from the grid, allowing utilities to put off upgrades that would have otherwise been inevitable.