In Part 1, I highlighted one technical issue with the increasing solar generation in Hawaii. Here, I want to discuss a misperception on an institutional barrier to distributed generation. When people think of electricity, they immediately picture their monthly bill and assume the utility makes all their money on the markup or profit margin per kilowatt-hour (kWhr) used. Like any good urban legend, that has a grain of truth. Consumers certainly are charged more for using more, but there are other utility costs that may or may not be rolled into that consumption rate.
The misperception is that Hawaiian Electric (HECO) is against solar because when more solar power is generated they do not sell as much electricity. But, that assumes the utility only functions on the hierarchical system where HECO just takes their cut in the middle:
- power plant –> transmission and distribution –> user
But, if HECO ran a fully functioning multi-directional grid, they could leverage temporal and spatial differences in generation and consumption. During the day, HECO would buy the excess power from the home solar panels and sell it to downtown office buildings or regional industrial users. At night, HECO would then buy or generate non-solar power for people to turn on the lights, cook dinner, and watch Game of Thrones. The raw material (electricity) costs balance out as they are buying from and selling to different parties in different places at different times. HECO would make their money charging people to be connected to this grid. There still will be consumption fees (use more, pay more), but HECO would now be incentivized to operate efficiently in moving power around, rather than just churning out more of it.
Much of this has already been going on for years and will continue for many more. Deregulation in the 1990s led to splitting utilities into generating companies and distributing companies. HECO has added a fixed rate charge to cover their capital costs so it is not buried in the variable kWhr rate. Other companies are experimenting with tiered pricing and time-of-day rates. Ernst & Young recently published a small pamphlet encouraging utilities to modernize beyond the old hierarchy.
Obviously, there’s much more to all this (and way above my head). A robust smart grid will not be cheap or quick to build. Renewable power is still a tiny fraction of all power production. Legal monopolies like utilities are forever in conflict with consumers and regulators. But, like I tell everyone when I discuss these topics – the technical problems are comparatively minor and totally solvable compared to these matters.