Who Pays for Grid Expansions When Homeowners Generate Their Own Electricity?

Grid operators have met their match and it's a growing number of distributed generators—erstwhile electricity consumers who've ended their reliance on the grid because their needs are met by rooftop solar panels.  But this exodus from the grid is occurring just as transmission systems are being expanded to prevent congestion and to handle more centrally-generated renewable energy.  The utilities say the cost of these upgrades is the financial responsibility of everyone, including those who've become energy independent. 

Now state regulators are trying to find solutions.  Northeast Utilities, which serves 3.6 million electric and natural gas customers in Connecticut, Massachusetts and New Hampshire, wants to add transmission infrastructure throughout its area and plans to spend $4 billion doing just that.  It needs to make up for capacity shortfalls and to replace 2700 megawatts that will be lost by 2017 as several coal and nuclear power plants are retired.  Meanwhile, new wind power generated in Maine is expected to come online and be transported into the utility's load centers in Boston.

The proposed expansions in Texas and in the Northeast coincide with a conflicting trend—residential customers who detach from the local utility to become self-sufficient by generating their own power.  Those distributed systems would reduce the number of customers linked to the grid and could erode the ability of other grid operators or utilities to widen their networks; such expansions require billions of dollars, which would be harder to come by if substantial numbers of customers thumb their noses at their utilities.

The outcome will largely depend on how the states configure their net metering laws, which establish the amount of money that distributed energy generators should get relative to retail electricity prices.  Utilities generally want to offer the wholesale rate, while former power customers who now feed electricity into the grid want the retail rate. Regulators are thus challenged to find a middle ground whereby utilities can afford to maintain their systems and homeowners are motivated to go green.  So, state regulators are trying to formulate how the cost of maintaining and expanding the network will be shared.

Who Pays for Grid Expansions When Homeowners Generate Their Own Electricity?