Untangling rate reform debates with smart meters | SEPA Skip to content

Untangling rate reform debates with smart meters


Editor’s note: This blog post went out via Utility Dive Solar with an incorrect title, which for technical reasons we could not change. The correct title is above.

By Ryan Edge

The problem with current debates over solar energy, net metering and utility rate reform is that, as solar technology continues to evolve, potential solutions developed in the current market may either be premature or quickly become outdated.

While the increasing deployment of storage has been a major focus of both media and industry stakeholders, current projects centered on the customer and grid benefits of advanced or “smart” inverters may present a stronger case for thoughtful flexibility going forward.

The basic function of inverters, which are a core component of all solar installations, has been to convert the direct current (DC) electricity generated by photovoltaic (PV) solar panels into the alternating current (AC) energy that powers our homes, businesses and electronic devices. Today, however, inverters are coming to market with the ability to provide a range of so-called “ancillary” or grid support services, which means they are providing more value to the grid.

Smart Inverter Map
U.S. utility service territories where smart meters are being deployed or considered. (Source: SEPA, NREL)

One example, inverter settings can allow higher limits for riding through sudden frequency changes — caused by the intermitment nature of solar — which can cause problems as higher levels of solar come onto the grid. This application is already being used in Hawaii, where 800,000 microinverters were remotely updated with new ride-through settings, which have provided better grid stability and opened the way for even higher levels of solar on the grid.

Watch SEPA’s video about the microinverter upgrade in Hawaii here.

In other words, the value proposition of solar — and particularly its value to utilities — is starting to change in ways that could have significant impacts on rate structures and how solar customers are compensated for the excess energy or other services they provide.

Current net metering policies and proposals for reform are based on an equation in which energy is cheap, but power is expensive. That is, the kilowatt-hours of essentially free energy produced by solar panels have a much lower value to grid than the generation, distribution and transmission system used to get that energy to customers in a usable form. From the utilities’ point of view, they are providing the greater service, which should be valued accordingly.

And, with net metering at full retail rates demonstrably eroding utility revenues, utilities and state regulators are exploring ways to offset these impacts, with different states looking at a range of new fees, demand charges and under-retail rate compensation formulas.

A new value proposition for solar

New smart inverter operations stand to increase the value that PV systems can provide to utilities, with some functions already being given monetary value in specific markets. Frequency regulation is already a marketable service in the 13 Mid-Atlantic and Midwestern states in grid operator PJM’s service territory, and smart inverters on energy storage installations are selling that capability into the system, although PV owners cannot.

But, when customers with solar PV systems with smart inverters can provide similar grid support services, how will they be compensated? Utility proposals for net metering reform generally seek to cut customer compensation at the same time that technology is increasing solar’s value. Demand response programs — in which customers cut or shift power use at times of peak demand — could provide one model of compensation for customer-provided grid support.

Two recent reports from the Solar Electric Power Association (SEPA) highlight some of the pilot programs utilities have launched to test grid support features of smart inverters and the issues still to be resolved.

Check out other reports in SEPA’s online resource library here.

Rolling Out Smart Inverters: Assessing Utility Strategies and Approaches,” coauthored by SEPA and the Electric Power Research Institute, provides overviews of key smart inverter pilots. Arizona Public Service, for example, is testing the integration of smart inverters with other utility control and communications systems, a combination with the potential to unlock robust power quality and and reliability features, such as dynamic volt/var operations and curtailment.

SEPA partnered with the National Renewable Energy Laboratory on the second report, “Industry Perspectives on Advanced Inverters for U.S. Solar Systems,” which provides an overview of the technology’s potential uses and current barriers to adoption. One problem on the way to being solved is the outdated technical standards — IEEE 1547 and UL 1741 — that have restricted the use of inverters’ grid-support features. Both are being revised with considerable stakeholder collaboration, including utilities and inverter manufacturers.

Providing customer and grid solutions

With the full potential of smart inverter technology still unfolding, the implications for net metering and rate reform are likewise still to be determined and, as with most things solar- and grid-related, will likely vary from region to region.

One critical area for research will be determining how smart inverter functions might affect customer compensation under net metering — since a rooftop system providing grid support services may end up producing less total energy, the basis for net metering. What are the technological and financial trade-offs for utilities and customers?

Once these hurdles are overcome and utilities gain more experience with optimizing the value of distributed energy technologies, even greater and more diverse applications for smart inverters can be expected. The possibilities are already being glimpsed in the distribution system provider platforms outlined in New York’s Reforming the Energy Vision (REV) plans and the California Independent System Operator’s approval for aggregated distributed energy resources to bid into its markets.

Energy transformation in these and other markets requires the development of services and technologies that can provide complementary customer and grid solutions. Smart inverters will be an integral part of this evolving landscape and perhaps a key to solving some of the interim, divisive debates.

Ryan Edge is a SEPA Research Analyst. He can be reached at [email protected].