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Yes, California Utilities Need Smart Metering Reform

Julian Silk's picture
Adjunct Professor
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  • Jan 24, 2022
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The question was asked whether California utilities need smart metering reform, such as that which is currently under consideration by the state government.  To have financial viability, the answer is yes.  (This has nothing to do with whether the utilities should survive, just whether they need the change to survive.)

The situation of Pacific Gas & Electric is a good example of the case.  PG&E's stock price has dropped dramatically since 2017.  As noted in macrotrends.net/stocks/charts/PCG/pacific-gas-electric/stock-price-history, PG&E's stock price has dropped from $71.56 in 2017 to $12.17 today (1/24/2022), and shows every sign of continuing to drop.  The accompanying macrotrends.net/stocks/charts/PCG/pacific-gas-electric/financial-statements information shows that PG&E lost billions of dollars in 2018 and 2019, which can be explained by the problems with wildfires, but also lost over $1 billion in 2020.  The most recent available net income statement, at macrotrends.net/stocks/charts/PCG/pacific-gas-electric/net-income, shows losses in at least the hundreds of millions continuing into 2021.

PG&E and the other California utilities face big financial challenges, with no margin for error.  The changes being considered by the California Public Utilities Commission, as described in latimes.com/environment/newsletter/2021-12-16/california-plan-to-cut-solar-incentives-boiling-point, notes that current rooftop solar suppliers to the grid are being paid market rates.  The solar providers basically eliminate profit for the utilities in daylight hours.  For early evening and early morning, California is largely relying on natural gas and imports.  This can be seen by looking at http://www.caiso.com/todaysoutlook/pages/supply.aspx.   But California has committed to 100% renewables, in the passage of Assembly Bill 525, as in fbm.com/publications/ab-525-laying-the-foundation-for-californias-offshore-wind-industry/, which means the utilities will have to transition away from natural gas, and start developing offshore wind, which will not be low-cost.  The report at energy.ca.gov/sites/default/files/2021-05/CEC-500-2020-053.pdf, notes that

"Off the coast of California, a steep continental shelf and increased wind speeds combine to make floating turbines the primary technically feasible option." and (with LCOE standing for "Levelized Cost of Electricity"),

"The average LCOE of floating projects is estimated by the DOE at about $230 per megawatt-hour (MWh) as of 2019 and is expected to decrease to about $75/MWh by 2030, as Figure 9 shows." 

The U.S. Energy Information Administration calculated LCOEs in its Annual Energy Outlook for 2021, at eia.gov/outlooks/aeo/pdf/electricity_generation.pdf, and found that a combined cycle plant would have an LCOE of $34.51, while the California natural gas supplies have already largely paid off their capital costs. 

So the utilities, under the current system, are not making substantial revenues, and face increased costs in the immediate future.  This includes the additional cost for storage for batteries and for pumped hydro.  greentechmedia.com/articles/read/california-we-need-1gw-long-duration-storage-by-2026, argued "California already throws away gigawatt-hours' worth of renewable generation monthly when production outstrips demand (and changes in consumption stemming from the coronavirus pandemic only exacerbated that trend).  What's more, the state needs to wean itself off of the natural-gas plants that come to the rescue every evening when solar generation disappears and grid demand spikes.

'The reason why they call out long-duration storage is because...without pushing in that direction, they will not be able to replace natural gas in the system,” [Mateo] Jaramillo said."

iopscience.iop.org/article/10.1088/2516-1083/abeb5b details the possibilities for pumped hydro storage in the American West.  There are many available sites, but the expense is not minor.  Figure 14 shows the capital cost for the off-river hydro storage facilities, which are by far the most likely to be developed, and the lowest figure is well over $500 million.

To sum up: The utilities are not in good financial shape as is.  PG&E may be an outlier.  But they all face loss of low-cost energy supplies because of legislative decisions.  Yes, this does not count environmental costs, but the adding these costs to the income statements of the utilities would only worsen their problems.  The utilities have to cut expenses, and if the greentechmedia.com argument is remotely correct, the obvious choice is payments to distributed renewable generation via net metering.  To repeat, this is not an argument that the existing structure of electricity provision is optimal, just that if it will be retained in remotely comparable fashion, this has to happen.

 

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Chase Sun's picture
Chase Sun on Jan 25, 2022

I believe the author meant the title to be Net Metering Reform instead of Smart Metering Reform.  Another key point is that according to the CPUC, the large solar electric energy price (and the wholesale price) is about 5 cents but NEM customers are paid 25 cents.  The difference is paid by the non-solar customers.  From a GHG reduction perspective, large solar kWh is the same as rooftop solar kWh.  Why should the ratepayers pay 5 times more for rooftop solar to get the same GHG benefits?  Another key issue is grid support.  Currently both the large and rooftop solar only provide as available energy and do not provide real time grid support at this time.  The grid support at night and during emergencies are provided by controllable gas generators for the most part.  But the CA plan is to retire these controllable generators in the near future.  In order to retire the controllable gas generators, large amounts of expensive storage batteries may be needed to make the renewable energy controllable and capable of supporting the load.  Those high battery costs will have to be borne by the ratepayers as well.  As more customers go rooftop solar, there will be more cost shift to the non-solar customers who are left performing balancing account functions.  Since there is a smaller base to spread the cost, the electric rates will go even higher.  This higher rate will force more of the non-solar customer holding the bag to go solar.  So, this current NEM approach is not sustainable.  At some point, if everybody go rooftop solar, then there is no one holding the bag/balancing the grid cost and everybody, including the roof top solar customers, will have to pay for the costs to support the grid at that time.

Julian Silk's picture
Julian Silk on Jan 26, 2022

Right.

 

Julian Silk's picture
Julian Silk on Jan 26, 2022

Let me just add a little more.  The technology for photovoltaic cells is improving.  As noted in my Electricity Journal article in October, ( see https://www.pv-magazinme.com/2020/02/19/a-quantum-dot-solar-cell-with-16...), new technologies for photovoltaic cells that can be manufactured at room temperature will probably be debugged and put into the market within 3-5 years.  So the problem will increase at an increasing rate.

 

"Smart" can also be used for "appropriate", and that was my original intention, although Chase Sun is correct to specify it as "net metering", not "smart metering".  Before criticizing this argument as "anti-renewable", people might check nrdc.org/mohit-chhabra/debunking-myths-surrounding-californias-net-metering-reform. 

 

The one thing I might mention is that the problem with transmission is not really addressed.  If people living on ranches or farms in Mendocino County install photovoltaic cells and the current system is maintained, they will have an incentive to ship electricity south, even though much of it will be lost in transmission and distribution losses.  It may be possible to develop a market design to pay for upgrades for transmission and distribution that will not disadvantage these people over those in Marin County.

 

Jim Stack's picture
Jim Stack on Jan 26, 2022

If PG&E cut the net metering rate I think many customers will use their battery storage and go OFF GRID. Then they will have less customers and lose even more revenue. They need to find better ways to work with customers. If they paid customers for energy during the duck curve the customers will provide it with their home battery systems. 

Julian Silk's picture
Julian Silk on Jan 26, 2022

They may.  But it will be more costly for the customers to rely on batteries, and if something goes wrong with the batteries, the customers will have to find non-electric-utility technicians to service them.  My feeling is that the expectation of enormous battery use outside of charging electric vehicles is overstated.  But it is hard to predict.

Bob Meinetz's picture
Bob Meinetz on Jan 27, 2022

Jim, I think PG&E would love it if whiny renewables advocates would go OFF GRID - at best, it would shut them up for a few weeks. The first cloudy day when their batteries run out, of course, they'll be calling from their friends' cellphones to please hook them up again, asap! But until then, they won't understand what a bargain reliable electricity is.

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