Four Ways We Can Drive More Distributed Generation Now

by Adam James

There are no “easy fixes” to transforming our energy system. But the solutions that may work fastest are often the simplest and least exciting: rate structure changes, streamlined permitting, and good interconnection laws.

Below, I will outline four big ideas that can move us toward an electricity system with higher penetrations of clean, distributed energy. This is not a comprehensive list, but it encompasses the “must dos” for driving distributed generation.

1. Solar PV: Siting, Permitting, and Fees — Oh My!

The Problem: Cheaper solar equals more solar. So why is it that, despite paying record low prices for PV modules in recent years, America lags so far behind countries like Germany in total installed PV capacity?

The answer, as a Lawrence Berkeley National Lab study shows (and David Roberts at Grist explains well here), is that the “soft costs” in the U.S. are far higher than in places with high penetration like Germany. Soft costs include siting and permitting regulations, taxes, and fees on solar PV which make installation much more expensive.

The Fix: Streamline the siting and permitting process and do away with pesky fees. Solar Communities has done some great work here, and while I think their 12 point plan is dead on, I’ll narrow it down here to four simple steps.

First, scrap the permitting fee on PV installations. That’s an average of 44c/W leveled out right there. Second, use a standard permit (preferably electronic) and specify the timeframe for approval. Third, cap the total permitting costs (cutting sales tax will help much here). Fourth, streamline inspections by offering an inspection checklist and narrowing the timeframe for inspections.

The Fight: This is not a battle between fired-up solar installers and evil regulators determined to quash the rise of PV. The challenge is standardization of something new, and bringing cities and installers together to communicate on what is needed in different places. Sharing best practices and success stories will help much.

Who can make it happen? With the exception of sales tax, which is a state issue and requires the state legislature to approve any exemptions, the remainder of the changes can happen at the local and municipal level with City ordinances.

2. Making Connections: Interconnection Laws to Hook Up PV Systems

The Problem: So you have your solar system up on the roof. Now what? Enter interconnection rules, which determine what can and cannot be hooked up to the electrical grid. Without rules that allow all renewable energy systems that meet safety standards to be plugged in without restriction, there is little incentive for distributed generation to take root. As it stands, 24 states have poor, harmful, or non-existent interconnection policies.

The Fix: Do everything in the Interstate Renewable Energy Council’s great little book on model interconnection policies. What’s that? You don’t want to read a 50 page report on interconnection? Surprised as I am, I will summarize the core recommendations and their rationale here.

First, states should clarify interconnection rules to make it known that third-party ownership of facilities is permissible and not subject to heavy regulation. This allows an outside party to own the system and sell electricity to the homeowner without a) violating the enforced utility monopoly and b) being subject to intensive commission regulation.

Second, raise the Level One cut-off to 25 kW. Level One applicants are subject to simplified procedures, since they are considered low-risk to the grid. Currently, most States consider 10 kW the cut off for you to be considered a Level One applicant, since when the rules were passed 10 kW was all most utilities could handle. Now, they have much more experience with distributed generation, so they can reasonably handle larger amounts of energy (up to 25 kW). Along these lines, interconnection rules should bump Level Two applications up to 2MW and Level Three applications up to 10 MW.

Third, allow applications to be electronically delivered by this new-fangled communications system called e-mail. A lot of applications still need to be hand delivered or done via post, which is a pain.

Fourth, improve dispute resolution by appointing a technical master who can act as a mediator instead of dragging small-time PV owners through the utility bill dispute process in the commission.

The Fight: Resistance on these fixes come from utilities and utility commissions. The basic concern of utilities, as the Rocky Mountain Institute points out, is that rates are not currently structured to compensate them for high penetrations of distributed generation. There are two charges on a utility bill — charges that relate to variable costs (how much energy you use) and charges for fixed costs (capacity investments, billing, metering, transmission and distribution).

The problem is that since variable costs are volumetric (based on total energy used); distributed generation changes the basic value proposition by introducing a way for consumers to export energy back onto the grid. This leaves utilities looking to their fixed costs for income (since the grid is still being used for two-way exchange). This results in a cost-shift to other consumers on the grid as utilities spread their costs out over a smaller rate base. Idea number 4 will address this problem more in depth.

Who can make it happen? State legislation and Public Utility Commissions are the key to making these changes.

3. Caps Off! Remove Net Metering Caps

The Problem: Net metering, which allows consumers to be compensated for energy they produce and deliver back onto the grid, is a crucial incentive for distributed generation, since solar usually creates more energy than one home can use at certain times. However, currently 13 States have poor, harmful, or non-existent net metering policies, which deter investment in PV systems.

The Fix: Creating net metering rules that grant consumers full retail credit of the energy produced with no subtractions, and protected from additional fees and charges. The specifics of these policies — such as if compensation occurs at time-of-production or annually — should be transparent and stable. This will encourage behind the meter installation of distributed generation and compensate customers actively for their contributions to the energy system.

The Fight: The battle here is the same as interconnection. There is an argument that the decrease in variable charges will spread fixed costs out un-equitably among other customers. However, this fails to adequately credit distributed generation with what it is bringing to the table. Solar production, which occurs at peak hours, allows for better load management at the toughest time of day. Additionally, distributed generation avoids costs of building the equivalent amount of centralized generation (as long there is enough base load power to provide for off-peak hours). Again, Idea 4 gives utilities a way to address this challenge.

Who can make it happen? State legislation and Public Utility Commission rulings are where the action is here.

4. Networked Utility: Restructuring Rates to Fairly Compensate Utility Companies

The Problem: As outlined in Idea 2 and 3, utilities are designed to make money first by selling energy, and second by maintaining the grid (at least at the residential level). This means that once net metering and interconnection rules are in place and distributed generation gets more pervasive, one of their primary streams of revenue is cut off. But at the same time, they still have to do the work of maintaining the grid and conducting the electron transactions.

The Fix: Implement rate structures that compensate utilities for adopting a network management model. This would require utilities to act much more like independent system operators at the wholesale level, wherein they would focus more on network operations, supervising transactions, large-scale grid investments, and creating markets. Precise compensation for these services will require some serious thought, but again, distributed generation advocates and utilities alike have significant cause to take it seriously.

The Fight: Most of the resistance on this comes from the utilities. Asking them to change the fundamental business model they have perfected over a long period of time isn’t easy. But it is the future (see Peter Fox-Penner’s Smart Power for more on this).

Who can make it happen? Public Utility Commissions need to restructure rates to accommodate this new role. Extensive consultation with utilities, distributed generation advocates, and consumer protection advocates will be required.

Adam James is Special Assistant for Energy Policy at the Center for American Progress.

12 Responses to Four Ways We Can Drive More Distributed Generation Now

  1. Mark E says:

    Since this is not nearly as sexy as staring down pipeline-laying bulldozers;

    and not nearly as adrenalin-pumping as extreme weather after-action quarterbacking;

    this regulatory world are the unsung trenches where the ground troops do the gruntiest of the grunt work (analogous to running for local school board). Everyone involved please take a deep bow!

  2. Brooks Bridges says:

    Somewhat OT: Charles Osgood’s Sunday Morning show had a good segment on global warming – at least the “Is it happening?” and “Are humans causing it?” aspects. They interviewed 4 experts including head of IPCC and Mueller and all four stated unequivocally: “Yes!”

    They interviewed no deniers. Refreshing and I think yet another sign the tide is turning fast.

    Not perfect: Mueller questioning weather effects – guess he’ll have to do his own analysis of that aspect also.

  3. Mike Roddy says:

    There is something else we need to do that is equally important: improve and standardize rooftop array support systems. Labor and materials to install usually cost more than the panels.

    Today, contractors often bid these jobs with little specific knowledge about the best way to attach elements subject to wind loads to roof trusses through the membrane. It becomes a cumbersome operation, overloaded with caulk and heavy struts (I’ve been up on these roofs myself). Solar manufacturers need to reach out to top engineers (currently preoccupied in sunset industries) to develop the best construction details and fasteners.

    Germany does this well because their roofs are sturdier, and simpler to attach to. Improving our designs is critical to market penetration. I know some engineers at Caltech and the University of Santa Clara that could work on this problem, if SEIA is interested.

  4. Mark E says:

    For the inventers among us…. I think there is an untapped market potential; greenies who are mobile and are (A) renting or (B) living in markets where going all renewable makes the house odd in terms of resale. Someday everyone will see such a home as an asset but sadly in a lot of markets having too green a home becomes a resale liability where you will never recover the investment if sold in under X years. So I would invest heavily on hardware designed to take it with me, leaving behind what my right leaning talk radio relatives would call a (normal) house.

  5. Richard L says:


    I am a solar installer and a professional engineer. I respectfully disagree about the root of the problem you are describing. (Note that I appreciate your many insightful comments on this blog).

    I think there are many well designed and simple racking systems for solar which work well for many different roof surfaces and truss/rafter configurations.

    The problem as I see it is the existing building stock is very diverse, and often poorly planned to take advantage of the sun’s power. Many buildings have old or poor roof surfaces that need to be replaced, adding cost. Other buildings have many obstructions on the roof – vents/HVAC equipment, etc. that need to be accounted for on an individual basis.

    For new buildings, too often engineering consultant ‘designers’ and architects with little to no experience in solar are preparing bid documents without hiring a qualified solar professional for design input. Often they rely on the ‘free’ advice from suppliers to prepare bid documents. Often this results in attempts to put solar in locations where it isn’t appropriate, or to put solar modules on racks custom designed by local engineers working on their first building with solar. I have seen some real works of ‘art.’ With typical ‘low bid’ procedures, the contractors and engineers that actually know what they are doing often have a choice – bid with many exclusions, or walk away. In time, this process should get better as more folks gain experience.

    Note to anyone preparing bid documents: I would be glad to be part of your team to review/provide design assistance: richatsunnysidesolarenergydotcom

  6. Dr.A.Jagadeesh says:

    Good Suggestions to utilise Solar as distributed generation of power.
    Dr.A.Jagadeesh Nellore(AP),India

  7. Richard L says:

    An additional thought on new building design. Often the building is designed using existing procedures, namely, to fit within the ‘plan’ developed conventionally based on interior space needs, land topography, street alignment, and facade orientation, etc. Solar is often one of the last design elements added, and it is shoe-horned onto the building. Often this is obvious by complicated support elements that Mike was referring to, or by reduced energy production.

    If solar was one of the first design elements, the roof orientation would be more suitable, the building planned accordingly, and a better energy gain. Of course the priorities of the owner/builder dictate this issue. In time hopefully people will embrace solar/energy as a critical element in building construction.

  8. Tom says:

    As a solar designer/installer (including the sales process) – I can tell you market penetration is limited by financing.

    If we want to see solar everywhere, having the utility (perhaps through a government supported process) provide the funding, with the utility bill reflecting loan payment + energy use – minus energy produced is the shortest path.

    Americans ARE ready for this, but especially after the 2008 financial crisis – the up-front capital is a concern. Most of the current financing is a lease model – which punished the homeowner for not having the capital – they never own the system – and are poorly rewarded (if at all) for “going solar” – so the incentive isn’t there.

  9. Leif says:

    I live in the Pacific North West but in a rain shadow and thus receive more sunshine the the average in the surrounding area. With that in mind, I could easily produce enough power on my 1/3 acer of land to supply all my power needs including driving if I had cost effective battery storage. Perhaps the liquid metal technology will be that answer. Currently I am limited by the power company to the amount of capacity I can produce. Effective storage would remove that barrier as I could have a separate and separated source to use after the sun went down.

  10. fj says:

    People and communities rolling their own smart micro grids may be one solution.

  11. Paul Robson says:

    Thanks for this. Great article. As Tom says, a major issue is financing. Wouldnt you think guaranteeing access to the grid, along with the other measures mentioned, is a necessary way of reducing market risk and thereby reducing the cost of financing?

  12. Adam James says:

    Thanks to everyone for reading. Financing is a core component of increasing the percentage of distributed generation (substitute “solar” for “efficiency” and a previous post sums up a lot of those challenges and solutions: Standardization of contracts (also boring but essential) and the real estate valuation challenge are subject for another day!