Four Ways We Can Drive More Distributed Generation Now

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 SystemsThe 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 CapsThe 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 CompaniesThe 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.