December 2015

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Smart Building Integrators Should Celebrate the End of Net Metering

The engineering is now unconstrained by artificial limits of technology choices driven by the need of grid operators to limit technology options.

Toby ConsidineToby Considine
TC9 Inc

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Net Metering never made sense. While it jump-started distributed markets, it also distorted the technology, and distorted public understanding. Eventually, it placed a foot atop capital markets for distributed systems. The retail cost of power is made up of costs for generation, transmission and distribution. It is irrational to expect to be paid for transmission and distribution when all you provide is power generation.

Markets for distributed generation assets, such as photovoltaics, have collapsed. They are not coming back. These assets cannot choose when to sell power to the grid, so they will always be price takers. Because they cannot choose when to sell, they will always get bottom dollar. In the net metering market, things are still worse, as the counterparty can turn them off, prevent them from selling, at its own convenience.
Asset values based on subsidies are un-bankable. Their value is derived from subsidies and kick-backs, either of which may go away tomorrow. The root cause for the collapse of PV values is that they were always based on a bubble of subsidies and limited to single purchasers.

Assets whose value is based in the building, and providing services, power and reliability within that building, can be valued by any lender based on the service they provide. Local use and local power open up the doors to easier financing of technology.

Net metering is one of a number of practices that have distracted from economic and engineering considerations. These practices subsidized the well-to-do power hobbyist with money drawn from less well-off rate payers. They supported a business model that tried to introduce new technology aimed squarely at late adopters (because late adopters are the business model for utility customers). By gating investments through the existing retailers, they encouraged only technologies that would not enable intermediation between customer and traditional provider.

Breaking the rules of markets and of innovation adoption makes no more sense than violating the laws of physics.

The first use for distributed power generation has always been local. Generate power and consume as much as you can locally. If you are able to pre-consume energy, that is stage one step of a larger process in advance, that is as good as power storage. Failing that storing energy, storing power, between when it is plentiful, and when you need it is the next best option. Only after these options are exhausted should a site, i.e., an automated building, sell to others.

Adding storage to local generation enables the local site, the local smart building to use its own power. It can choose when to come to market or not with power, and so makes more economic sense than just generation. Even a facility with no generation is able to do better if it includes storage, able to buy low and to sell high.

As an added benefit, facilities that include storage can gain resilience, can always have power without the ongoing expenses and regulatory issues of on-side diesel- or natural gas-based generation.

Eventually, new markets will arise, ones that support peer-to-peer power sales. Eventually, distributed power assets will have access to new value streams from selling to neighbors.

Engineering around subsidies bad economics, i.e., subsidies, produces results that are as flawed is as does engineering around bad insulation values or as engineering around bad operating information. Net metering is collapsing from its internal contradictions wherever it is available.

KMC Controls What will emerge is power based on solid engineering, not market gaming. What will emerge will increase the value of automated buildings so long as they understand how they themselves use power, and how to use power over time to better support the needs of their inhabitants and owners.

Buildings must understand their own moment by moment energy use if they are to sell to others. A facility should know its own overnight power requirements before it sells its daylight power production. A facility that wishes to live within its generation must control power spikes, when two or more devices run at the same time. From self-awareness comes the ability for a building to play in power markets.

All the subsidies were always a distraction from good engineering. Now the technologies are good enough, and storage is getting cheap enough that we can begin to do better things for building owners. The engineering is now unconstrained by artificial limits of technology choices driven by the need of grid operators to limit technology options.

Good solutions for power, including power storage, will be easier to finance.

Rejoice at the end of net metering, engineer for the site and the business it hosts first, and sharpen your pencils…


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