Pricing Policies for the Integration of Distributed Energy Resources in Utility Systems

Under current federal law, utilities are required to compensate solar DG owners for the electricity they produce. The amount that DG owners are compensated at varies by utility and state. DTE, a Detroit-based utility, currently uses a policy called net metering, which compensates DG customers for the energy they produce at the retail rate. While the impact of net metering policies has historically been small, growth in DG adoption could lead to significant losses in revenue for utilities as DG customers avoid paying their share of fixed costs. These losses are made up for by increasing retail rates for all customers. This increase in retail rates affects non-DG customers as their electricity bill increases every year to account for the ‘cost-shift’. The three main objectives of this project were to (1) Review distributed generation pricing policies throughout the United States, (2) Develop a model to compare relevant pricing policies to DTE customers to understand the impacts on DG and non-DG customers, especially the ‘cost-shift’ and (3) Recommend pricing policies for DTE’s customer base based on the analysis. We developed a model to understand the effects of compensation policies and retail rate structures on net present value and payback period for DG customers and average retail rate and ‘cost-shift’ for non-DG customers. We analyzed the effects of compensation policies such as net metering, value-of-solar, and net billing and also analyzed retail rate structures including block volumetric rate structure and time-of-use rate structure. The findings of this research suggest that given the historic low adoption growth rate, DTE could maintain the current policy of net metering for the duration of the modeled period through 2031, unless the DG adoption drastically increases. Bill increases for non-DG customers are minimal ($2.67/month increase on monthly bill in 2031) and the health and environmental benefits of solar DG generation exceed the cost-shift to non-DG customers under the business-as-usual scenario. Current net metering programs therefore help support the residential solar industry and create a net benefit for all customers when environmental and health costs are considered.Master of Science (MS)Natural Resources and EnvironmentUniversity of Michiganhttps://deepblue.lib.umich.edu/bitstream/2027.42/136637/1/306_DTEMP_4.24.17.pd