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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

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...

dpierce9 11y ago
Here is my point, suppose a kWh costs 10 cents retail. This represents an average cost of maybe 1 cent of profit, 1 cent of admin costs, 3 might be transmission costs, and 5 might be generation costs. In a 1-1 net metering scheme, I generate 1 kWh in the distribution grid, it goes to my neighbor, the utility bills my neighbor 10, and credits me 1 kWh. When I draw that 1 kWh, the utility loses 2 cents on average. But they also saved 8 cents by selling my kWh to the neighbor. The summing works like this: 10 from my neighbor to the utility 0 from me to the utility -10 for the utility to provide me that kWh 8 to the utility for avoiding the cost of generating and distributing the 1 kWh that went from my system to the neighbor. The net to the utility is 8 cents. Ouch. But we are talking about the average kWh. It might cost the utility 3 cents to buy an off-peak kWh and 8 cents to buy an on-peak. If that is the case, they are already losing 2 cents for every on-peak kWh they are selling me but making up for it with off-peak (I am likely to use more off-peak anyhow). In this case, netting might look like the following: 10 from my neighbor to the utility 0 from me to the utility -8 for the utility to provide me an off-peak kWh 11 to the utility for avoiding the cost of generating and distributing the 1 kWh that went from my system to the neighbor. The net to the utility in this case is 13 cents. 13 cents is better than 8 cents but it is worse than the 20 cents they would have made if I just consumed without generating. Whether you credit at wholesale or do a .75-1 netmetering or whatever depends on evaluating the stranded costs and whether they are reasonable. Insofar as you look at average kWh prices and not the value of actual production from solar, you inevitably overstate the stranded costs.

dpierce9 11y ago

Here is my point, suppose a kWh costs 10 cents retail. This represents an average cost of maybe 1 cent of profit, 1 cent of admin costs, 3 might be transmission costs, and 5 might be generation costs. In a 1-1 net metering scheme, I generate 1 kWh in the distribution grid, it goes to my neighbor, the utility bills my neighbor 10, and credits me 1 kWh. When I draw that 1 kWh, the utility loses 2 cents on average. But they also saved 8 cents by selling my kWh to the neighbor. The summing works like this: 10 from my neighbor to the utility 0 from me to the utility -10 for the utility to provide me that kWh 8 to the utility for avoiding the cost of generating and distributing the 1 kWh that went from my system to the neighbor. The net to the utility is 8 cents. Ouch. But we are talking about the average kWh. It might cost the utility 3 cents to buy an off-peak kWh and 8 cents to buy an on-peak. If that is the case, they are already losing 2 cents for every on-peak kWh they are selling me but making up for it with off-peak (I am likely to use more off-peak anyhow). In this case, netting might look like the following: 10 from my neighbor to the utility 0 from me to the utility -8 for the utility to provide me an off-peak kWh 11 to the utility for avoiding the cost of generating and distributing the 1 kWh that went from my system to the neighbor. The net to the utility in this case is 13 cents. 13 cents is better than 8 cents but it is worse than the 20 cents they would have made if I just consumed without generating. Whether you credit at wholesale or do a .75-1 netmetering or whatever depends on evaluating the stranded costs and whether they are reasonable. Insofar as you look at average kWh prices and not the value of actual production from solar, you inevitably overstate the stranded costs.