Net Metering, Feed in Tariffs and the Green Energy Economy Guerry Waters Vice President, Strategy Oracle Utilities [email protected] The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle’s products remains at the sole discretion of Oracle. Agenda

• What Is the Problem? • What Are Utilities Doing to Solve It? • Can Net Metering and Feed in Tariffs Improve This Picture? • Alternatives to Net Metering and Feed in Tariffs • Discussion A Very Short Review: What Is the Problem?

(…you’ve seen this before) The Problem: Greenhouse Gas Emissions and Global Climate Change

Fossil Fuel Generation of Electricity is a Major Contributor to the Problem What Are Utilities Doing to Solve It? Solution 1: Utilities Deploy Technology to Reduce Losses Theory: More Throughput = Fewer Emissions

Source: Energy Information Administration, US Department of Energy Results are not large. Solution 2: Utilities Encourage Customer Efficiency

Theory: Lower Use = Fewer Emissions

Utilities have “been there, done that”! But Consumption Keeps Rising

Source: Energy Information Administration, US Department of Energy Solution 3: Utilities Encourage Customers to Buy Power Generated from Renewables Theory: More Use of Non­Emitting Renewables = Fewer Emissions • Renewables supply options permit customers to: • Pay a set amount into a “renewables fund” • Choose all or a percentage of electricity from renewables • Choose specific renewables in specific amounts • More than 60 percent of U.S. utilities offer one or more of these programs Surveys Indicated Consumers Would Participate “54 percent said they would pay more for alternative energy sources.”

2007 Deloitte Survey of Electric Consumer Opinion on Alternative Energy

“Two­thirds of consumers are willing to pay more for power that could be definitively shown to have lower emissions of greenhouse gases.”

IBM Survey Plugging in the Consumer December 2007 Participation in Green Pricing Programs

Source: U.S. Energy Information Administration

Looks pretty good until you realize this is .6% of all customers. The Best Participation Rates

Source: Chartwell, Utilities still struggling to get customers to buy into premium green power products, 2009. Solution 4: States / Provinces Mandate Renewables in Electricity Supply Portfolio

Source: North American Reliability Corp., 2009 Renewables Potential Makes Headlines

“A square of the Arizona desert, 100 miles on a side … could provide the entire country with its electricity needs.” Gary Schmitz National Renewable Energy Laboratory US Dept. of Energy

“North Dakota alone is theoretically capable (if there were enough transmission capacity) of producing enough wind­ generated power to meet more than fourth of U.S. electricity demand.” American Wind Energy Association Idea Is to Increase Percentage of Renewables Use from Today’s 7%

Note that Biomass consumption is almost entirely in transportation Source: Energy Information Administration, fuels (e.g. ethanol) US Department of Energy Large Volumes of Intermittent Renewables Require a Smart Grid

Smart Meters and New Sensors / Distributed Computing on Home Networks Transmission and Distribution Lines help customers alert operators, fix problems, integrate use energy wisely, large­scale renewables generation mitigate peak demand, integrate local renewables

Generation Transmission Distribution Consumers But Once We Get It, Even a National 25% Renewables Mandate Doesn’t

Stop CO2 Emissions Growth U.S. emissions projections given current trend toward renewables

Emissions projections with 25% renewables mandate

Source: Energy Information Administration, US Department of Energy Can Net Metering (NM) and Feed­in Tariffs (FIT) Improve This Picture? How Net Metering Works

• Customers generate electricity on­site using renewables • They use some on­site • They sell excess to utility • A single standard price • A time­of­use price • A market­based price • Volume is subtracted from amount taken from grid • Customer draws electricity from the grid when on­site production inadequate • Single­ or dual­meter methodologies How Feed­in Tariffs Work

• Customers generate electricity on­site using renewables • They may or may not use some on­site • They sell what they don’t use to utility at the established feed­in tariff: • A single standard price • Different standard prices for different renewables • A time­of­use price • A market­based price • Customer draws electricity from the grid as needed • Dual­meter methodology only What Are Some of The Differences In Net Metering and Feed In Tariffs?

• Typically Net Metering uses one meter, FIT uses two • NM is typically based on net consumption • FIT can be based on net consumption or gross generation • Typically compensation for FIT will be subsidized by total customer base Feed­in Tariffs +/­

• Easier to vary FIT prices by energy source (wind, solar, H 2 O) • Easier to vary FIT prices by market price of renewables • To vary price paid via net metering, separate bill is calculated for each interval or time­of­use category (could be up to 2880 separate bill calculations/month). • In FIT, system calculates amount owed and subtracts it once from bill. • No requirement that customers use some generation on­site • System can be much less expensive • May include requirement for aggregator or utility control • Aggregator/utility control = high probability that generation will be used; payment uncontroversial • Easy for aggregator or utility to determine which systems working correctly • But customers may find this less attractive because: • Home is not “independent” • Payments may be smaller than anticipated under net metering Where Did Net Metering and Feed in Tariffs Originate? • 1978 ­ Public Utilities Regulatory Policies Act • Response to energy crises of 1970’s • Required utilities to accept power from independent power producers if lower cost • Energy Security a very high national priority • 1981 ­ Arizona ­ first Net Metering law • North Dakota not far behind • Idea was to extend PURPA to individuals • 1984 – California introduced a FIT in its Standard Offer Contracts #4 Revival: Late 1990s as response to environmental issues / interest in renewables Why NM and FIT?: Advocates

• Reduce greenhouse gas emissions by reducing reliance on non­renewable resources • Encourage the growth of renewable energy technologies • Stimulate greater innovation in renewable energy technologies • Reduce distribution loss factors associated with flow of electricity through the distribution network • Reduce the amount of energy required to be purchased from the wholesale electric market by reducing reliance on network delivered energy Why NM and FIT?: U.S. Government

Net metering is a low­cost, easily administered method of encouraging customer investment in renewable energy technologies. It increases the value of the electricity produced by renewable generation and allows customers to "bank" their energy and use it a different time than it is produced giving customers more flexibility and allowing them to maximize the value of their production. Providers may also benefit from net metering because when customers are producing electricity during peak periods, the system load factor is improved. Source: http://apps3.eere.energy.gov/greenpower/markets/netmetering.shtml

• Encourage technology investment • Reduce peaks Why NM and FIT?: Others

“Much like the fishing, hunting and wilderness that inspires us to live and invest in Alaska, net metering embraces a core value common to us all: the idea that we can live a simple and self sufficient lifestyle by making use of that which nature provides to us. ” Alaska Net Metering Coalition http://www.aknetmetering.com/?page_id=22

“Widespread use of Net Metering could dramatically lower energy costs world wide. Widespread use of Net Metering could also efficiently use and distribute power from sustainable and environment friendly sources. Widespread use of Net Metering and local power generation could mitigate or diminish the security and economic threat inherent in centrally­produced power.” Institute for the Future http://p2pfoundation.net/Net_Metering

• Encourage specific lifestyle • Lower­cost renewables Assumptions About Net Metering

• On­site generation does not contribute to greenhouse gas emissions • We ignore equipment manufacture and emissions related to transportation and installation • Utility must accept whatever the customer puts into the grid, whenever the customer puts it in • Some utilities are challenging this assumption • Utilities have the right to: • Test equipment • Enforce interconnect standards • Customers have the right to: • Interconnect • Receive compensation • Regulators may: • Establish technical standards • Set compensation rates and interconnection fees • Limit participation (amount per customer, # participants, % of load How Did We Conclude that Net Metering Is an Environmental Plus?

• Solar is non­emitting • More solar roofs sounds good • The fact that there was no way to use this production was minimized by the very small number of people expected to participate • Little / no opposition from utilities or consumer groups Current U.S. Net Metering Requirements Is This An Appropriate Business Model?

1: In response to environmental and health issues, regulators require increased % of organic tomatoes in ketchup

2: Heinz says it will buy from large organic producers and pass costs on to customers Is This An Appropriate Business Model?

3: Ketchup prices rise $1

4: To the planning of organic tomatoes Regulators say Heinz must also buy from any willing seller, no matter how small Is This An Appropriate Business Model?

5: Heinz sends trucks to backyards, picking up 3­58 tomatoes in each participating household

Condiment Demand 6: Ketchup prices rise by 3 100 more $. Demand for mustard 80 rises dramatically 60 Ketchup 40 Mustard

20

0 2007 2008 2009 2010 Issues Grow as Participation Rises

1.At what point does net metering … start looking like a competitor who sells higher priced electricity than could be found elsewhere? 2.Will other customers have to pay for these higher rates, and is that fair? 3.If net metering and FIT [grows], how will the utility continue to cover fixed costs as revenues decline? 4.Is the utility providing a [free] storage service? 5.Can renewable energy be acquired elsewhere at lower cost? Source: Solar Electric Power Assn. http://www.renewableenergyworld.com/rea/news/ar ticle/2008/06/utilities­and­net­metering­52703 Participation is Increasing…

.03% of customers Source: U.S. Energy Information Administration Maybe we should rethink this…. What’s In It for Utilities?

• In conservation, we’ve recognized that utilities tend not to put full energy into a program that will undermine them financially Possible resolutions: • Decoupling or other forms of “making whole” • Opportunities to earn rate of return on conservation investments • We haven’t yet come to the same recognition for net metering How Does Net Metering/FIT Fit Into Smart Grid? Customer Care and Business Intelligence Billing

Load Analysis Mapping Network Work and Asset Governance, Compliance Management & Regulation Management Mobile Workforce Communications Communications Management Systems Systems Consumer Smart Energy Meters Network Meter Data Technologies sensors Management & controls

Event Manager

Middleware / Smart Grid SOA

Project Business Database Spatial Database Management Intelligence Alternatives German Model

• Homeowner chooses to install rooftop solar – and owns it • National subsidy available • Connection is on utility side of meter • Utility uses in same way as utility­owned solar; compensates homeowner (FIT) Emerging U.S. Alternatives

• Utility can rent rooftops and install utility­controlled renewables production • Third party can do the same Discussion

How does your utility handle net metering, feed in tariffs?