"Billing" from EnergyMobile's Powercents iOs AppFirst, some assumptions. Let’s assume that the average cost of a kWh of electricity in Ontario is $0.125/kWh - energy, distribution, regulatory charges, debt retirment, HST, etc. This is a farily safe assumption, and prices are forecasted to increase by 35% by 2016.
Now, if someone came to you and said: “Person, how would you like your own solar array with no up front costs, and you’ll buy it’s energy for $0.125/kWh over the next 20 years?”
How might you respond?
This is the approach used by SolarCity and is the conversation that starts a relationship known as a “power purchase agreement” (PPA).
Let’s assume that some people think this is a good idea - and solar panels start popping up in your community. People with solar panels today pay the same price for power as people without solar panels. Next year, the people with solar panels are paying a little less compared to people without. A few years down the road - those with solar panels are paying a lot less.
If next year you can sign a PPA at $0.125/kWh while the utility price has gone to $0.13/kWh, more people will sign PPAs and install solar panels. Since prices for solar equipment (panels, racking, inverters) continue to decline, the PPA price may have dropped to $0.122/kWh.
Eventually, it’s materially cheaper to have your own generator on the roof and use your utility connection to meet any gaps. Over the year, you aren’t getting much energy from them, and they aren’t getting much money from you. Sure, you still have to pay the same rate for power to fill gaps that everyone else does, but the bulk of your energy will be provided by your solar array at your PPA rate, while your neighbors are paying 120% of your rate to the utility company.
Well, your utility company makes it’s money on the “Distribution Charge” on your utility bill. They have trucks, offices and executives to pay and still have hundreds of kilometers of wires to maintain.
Hypothetically, lets say the utilities budget required to distribute energy in a community was $100m, and the distribution charge covered that expense at $0.04/kWh. What happens if 20% of the gridizens decide that they’d rather save money and have solar panels instead of pay these forever increasing electricity prices?
Obviously, if 20% of the customer base no longer pays delivery charges, the utility company is out $20m. Individuals putting solar panels on the roof have not reduced the kilometers of wires the utility company is responsible for, the age of transformers that need to be replaced, the salaries of staff or other costs associated with operating a local distribution company (LDC) / utility.
So, each of Ontario’s 74 LDCs will request a rate increase from the Ontario Energy Board - fun fact on rate increase applications, 1/2 of the applied for 4-year rate increase is dedicated to legal and application associated fees according to Ontario’s Auditor General. Let’s assume the LDC is successful in securing the rate increase to cover the lost distribution revenue, the cost of application, as well as some future contingency. This will be spread over the remaining 80% of customers. Remember, the original budget was $100m, the loss was $20m, the legal fees for the application were $20m over 4 years, plus a contingency and the new rate should generate $110m from a smaller rate base.
Elsewhere in Ontario, large renewable generators are coming online providing ample supply to the grid and reducing wholesale energy prices while increasing the policy portion of energy costs known as the “global adjustment”. So, the energy component on your conventional bills continues to rise (as predicted) and the delivery charge continues to rise while the price of the alternatives continue to fall.
Herein lies the crux. Ontario is investing in expensive generation projects - nuclear renewal, renewable energies and combined cycle enhanced natural gas cogeneration facilities - while distributed energy technologies - solar - continue to get cheaper.
First, a trickle of people will move to rooftop solar PPAs over traditional LDC connections. Prices for solar will fall, prices for energy and the delivery of it will rise.
Then, a wave of people will move to rooftop solar PPAs over traditional LDC connections and Ontario will pay generators not to generate, will pay first for expensive generation, mothball assets and scrap projects - all increasing the policy cost of energy (global adjustment). With fewer kWh’s to deliver, LDC’s will have to jack up delivery costs to service the (on average) 60 year old infrastructure.
Sounds a bit apocalyptic - if you’re a LDC. What matters to you and me is that we get affordable, reliable power when we plug in out toasters, hair dryers or electric cars. None of us have a particular affinity for our utility company. Installing on-site generation and using the LDC as a backstop for variations will be like you sticking it to them, after years, decades, a century of them sticking it to you.
The question for ratepayers is - when will you switch?
The question for utilities is - how will you adapt?
Ratepayers will find a solution in the market that provides cost comparable, reliable energy. As regulated rates continue to climb, the cost of alternatives continue to decline and smarter home technologies enter the market, there is, for the first time ever, competition for the bulk of your utility bill.
Note: This post does consider the Ontario example where net-metering is not the standard practice. Ontario homeowners can apply (about once per year) to install solar panels for income generation and be compensated with a 'feed-in-tarriff'. If solar industries can survive in competition with delivered energy costs from the utility, how much longer will it make sense to pay 4x the consumption rate to support solar industries?
Pareto Patrick | 
