RMI: Electricity pricing must adapt to embrace distributed generation

Dive Brief:

  • The growth of distributed resources is rapidly changing the U.S. electric system, increasing the disconnect between new technologies and old pricing structures, according to a new report from Rocky Mountain Institute's Electricity Innovation Lab.
  • Innovation is being constrained by pricing structures that fail to accurately reflect the costs and benefits of distributed resources, according to the report.
  • Changes to power pricing are necessary, but they will "undoubtedly pose challenges" as they reflect the growing complexities and costs of distribution systems, the report said.

Dive Insight:

Distributed generation is already here and installations are only expected to increase. But innovation to pricing structures has lagged those developments, according to Rocky Mountain Institute's eLab, which is holding distributed generation resources from being fully integrated onto the electrical system.

"By changing electricity pricing to more fully reflect the benefits and costs of electricity services exchanged between customers and the grid, utilities and regulators can unleash new waves of innovation in distributed energy resource investment that will help to reduce costs while maintaining or increasing system resilience and reliability," the report suggests.

Accurate pricing signals for distributed generation resources will mean a departure from a pillar of ratemaking philosophy: simplicity. But the report's authors say the transition can be made in three steps of increasing complexity. The report suggests beginning with a shift from fully-bundled pricing to breaking out attribute unbundling; then adding time-based components to bills; and finally factoring in a location-based component.

"A transition to more sophisticated pricing is attainable for large portions of the country, but will require careful planning and customization to local circumstances," the report said.

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Filed Under: Generation Transmission & Distribution Regulation & Policy
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