Solar rate regime hikes bills for all NSP customers
Electricity created from solar power is a great renewable resource and its use is rightly encouraged by the government.
However, the method of paying for solar electrical energy is unfairly shifting about half of the expenses to operate NSPI onto those who do not have solar panels.
Many customers either do not have the financial ability to purchase solar panels, or are renting and do not have the ability to have them installed. This means that the rates paid by the majority of residential customers will increase more than necessary.
The electricity rates are set by the Nova Scotia Utility And Review Board. This is a detailed exercise that involves expertise and experience. This article does not go into either the detail or merits of how the rates are established. The illustrations used below are approximations and are not at the level of accuracy or detail used in the setting of rates.
The main principle used in the setting of rates is that NSPI is allowed to recover all reasonable expenses to generate and deliver electricity to the customers. The residential bill has two components: a relatively small base charge plus an energy charge. The base charge is fixed and the energy charge is dependent upon how much electricity is consumed. As of now, the energy rate, for residential customers, is 16.215 cents per kilowatt hour.
The reasonable expenses that need to be covered by the energy rate can be broadly categorized between variable and fixed expenses. Variable expenses directly change with the amount of electricity sold to the customers. This would include the fuel (the majority of which is coal) and the costs to buy electricity from others.
It would be similar to the gasoline expense to run your car. The fixed expenses are those that will not change, no matter how much electricity is sold. This includes the expense to maintain the wires that carry the electricity to your house (such as the repair of those wires after storms), debt payments, etc. This would be similar to the repairs, insurance, licence expenses and loan payments for your car. These costs must be paid whether you drive your car or not.
The total reasonable expenses for NSPI are approximately half variable and half fixed. For residential customers, this means that about eight cents per kilowatt hour is for fuel and eight cents for fixed expenses.
The method used to determine what is paid to those who have solar electric panels is called “net-metering.” How it works is that someone with solar panels generates more power during the day. So the excess is “sold” to NSPI at the same rate for its purchase, 16.215 cents per kilowatt. At night, the solar panels are not generating power, so the owner then buys power from NSPI at the same 16.215 cents per kilowatt hour.
In practice, those with solar panels have their meter run backward during the day, when the solar panels generate power, and forward at night when the house draws from NSPI. Assuming that the solar panels generate more during the day than is used at night, there will be a payment from NSPI for the difference. This method means that after a period of time, they will have paid for the installation of the solar panels and have “free” electricity thereafter.
The advantage to us all is that NSPI can reduce the purchase of coal by the amount of electricity generated by the solar panels. The trouble is that the actual savings is only half of the rate paid for electricity. They should not be selling the electricity back to NSPI for the full 16.215 cents! They are saving NSPI (and all of us) only the variable expenses (fuel) to produce the electricity, but not the fixed expenses to deliver it.
The fixed expenses, which help ensure they have electricity delivered to them at night, are not being paid by them. This means that all of the other customers of NSPI must pay for all the fixed expenses. For NSPI to recover these fixed expenses, the residential rate must be increased. The amount of increase is equal to the portion that is not being recovered from those with solar panels. For those with solar panels, the net metering means that any increase in rates is cancelled out and that they will actually receive more in the payment from NSPI.
In conclusion, those with solar panels are shifting the rate burden for covering all the reasonable expenses of NSPI to those without. The government has introduced a bill that supports this shifting of rate burden. They have not allowed NSPI to introduce any method or rate design that would more equitably share the fixed expenses. The goal of reducing the burning of coal is admirable, but to do so by increasing the cost of electricity for those who cannot install solar panels is discriminatory.