Can Smart Grid Energy Infrastructure Increase Demand for Distributed Generation Solar?

As an entrepreneur int he solar industry, I’m very happy to report the frankly surprising growth figures.

2015 Solar Industry Fact Sheet courtesy of the Solar Energy Industries Association (SEIA)

2015 Solar Industry Fact Sheet courtesy of the Solar Energy Industries Association (SEIA)

It’s quite astonishing. In fact when an adviser of mine just recently retired from the solar installation firm he founded, he mentioned how the last installation project he was part of was larger than the capacity of the entire industry when he started the company in 1998.

All said and done however, solar still accounts for just over 2% of all energy capacity in the US, the World’s second largest CO2 equivalent emitting nation. While the battle on Capital Hill still mindbogglingly rages about the existence of Climate Change, many policy makers and research are still pushing for the best legislative options be it Carbon Taxes, a tradable performance standard, or investment tax credits.

My current research takes an additional perspective focusing on the potential benefits of a fully integrated Smart-Grid system. Unfortunately the economics of the energy and utility industry are nonetheless complicated than the technology behind it, but the highlights are not terribly difficult to comprehend. Electricity, much like many other commodities such as gold, oil, rare earths, etc. is subject to major market fluctuations when traded at the whole sale level. End consumers (i.e. rate payers) are never really made privy to these because we pay our electric bills based on something known as “load profiling”. This is what allows utility companies to display the electric supply rate as a constants $/kWh figure on your bill each month. In the whole sale market, spot pricing takes place where you have “real time” price fluctuations based on supply, demand, congestion, and a variety of other cost figures.

Under a Smart-Grid system, where all generation, transmission, and demand points (often referred to as nodes), have the ability to communicate with one another at the speed of light, the economic concept is that those spot prices will be able to translate into the retail prices that everyone would be then subject to as rate payers. The average person may be wondering “why would I want to change from a constant price model to one which fluctuates?” There are a number of efficiency reasons for this, but mostly because it allows consumers the ability to lower their overall energy costs as electric prices will more accurately reflect the real time costs of generating and transmitting it.

In my current research however, I am exploring the effects of a what a potential Smart-Grid could have on the solar market. The hypothesis being that all else being equal (i.e. maintaining a control of variables such as solar incentives), depending on what the spot price trends tend to look like during solar panel production hours, customers may actually reap a greater benefit out of a solar panel system than they would under a load profile system. Why is that? Well imagine if the typical spot price trends were that electric prices are low at night but high during the day.  Under load profiling, a customer would not notice this and pays the same rate regardless of what time of day, and so when their solar panel system is putting energy onto the grid, or saving you from drawing electricity off the grid, the effective savings are based on the load profiling electric rate. Under spot pricing, if electric costs where high during the day when your solar production is highest, you may in effect save more money since the energy you’re producing at that time is “worth more” i.e. has a higher price.

Thanks to multiple advisers and NYISO, I’m well on my way to researching this point and will be sure to make a post when more info is available.

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