A meeting with our electricity provider, People’s Energy Cooperative (PEC), shed a new light on the difficulty of incorporating solar or wind distributed generation systems (DG) into the energy mix of electricity providers.
PEC provides electricity to rural customers in our area and previously had two modes of recouping fees for obtaining and distributing electricity to its customers. These were a base monthly fee ($37) and a fee per kWh used (~$0.11 per kWH). However, the base fee did not cover the entire cost of distribution (~60% of cost) with the remaining embedded within the per kWh used (~40%).
The benefit of such a system from an environmental view is that it incentivizes users to reduce their usage by keeping kWh more expensive. However, with net-metering laws passed by many legislatures, the power companies were required to purchase excess electricity generation by DG systems at the retail rate (the same rate they charge for electricity) rather than at the wholesale rate (the rate they generate or purchase electricity). This means many DG systems were netting their kWh usage to zero for the year, and therefore the electricity providers were not recouping the embedded distribution cost from the electricity usage fee.
As a consequence, electric companies lobbied and were successful in many legislatures (including Minnesota) to incorporate a “Grid Access Fee” to DG owners. The addition fees increased our solar panel payback time period to more than 20 years for our system, significantly longer than those quoted for high solar production, high $/kWh states like California where payback might be 6-10 years.
Here’s a look at the numbers from our home:
Size of system: 9.8 kW
Cost of system: $30,840
Federal rebate (30%): $9252
Final cost of system: $21,588
Cost of system per installed watt: $2.20
Predicted annual production: 11,200 kWh
PEC cost per kWh: $0.11
The rest of the calculation assumes we use approximately as much electricity as we produce:
Money saved by being net zero (11,200 kWh times $0.11): $1,232
Basic monthly service charge: $37.00
Monthly grid access fee: $24.31
Here’s the calculation for the total cost of the system—(money saved) – (yearly fixed costs) x (number of years). Three grid-tied calculations, based on:
- No yearly fixed costs (can’t eliminate monthly service charge unless you are off-grid anyway, and what if they did not charge the grid access fee)
- Only grid access fee (see #1)
- Include all yearly fixed costs
- $1,232 savings times X years = $21,588 (payback = 17.5 years).
- ($1,232 – $291.72) times X years = $21,588 (payback = 23 years).
- ($1,232 – $735.72) times X years = $21,588 (payback = 43.5 years)
To alleviate the gripes of DG owners the PEC is discussing moving all of the distribution costs into the basic monthly service charge. In this case, the payback period would be 17.5 years (although this raises fixed costs that can’t be eliminated, so on net examples #1 and #2 result in the same amount of money spent for kWh obtained). Currently, the payback period is 23 years with the monthly grid access fee for DG customers.
If the system could be converted into an off-grid architecture, then the minus sign in example #3 turns into a positive sign and the payback period drops to 11 years. This, however, would entail significant spending for battery storage, and would be difficult in the winter months where electricity use is high (heating) and solar production is low.
There are other reasons for solar
So, for our system the payback time is between 17.5 and 23 years. Not a great return on investment, but we converted to an all electric house and a photovoltaic system for many other reasons. Among them:
- Reduced carbon footprint
- Eliminated combustion in the house for cleaner air
- Reduced distribution costs to one provider
- Eventually paired with batteries and electric car
As a DG owner, we did not feel much love from our electricity provider and felt like they only put up with us because they are required to do so by the state through net-metering laws. From their point of view, DG owners do not reduce the cost of production or the number of power plants required to produce electricity. Solar customers do not produce power reliably (sun does not always shine, wind does not always blow) nor is DG power produced at times of peak load on the grid.
For rural systems that don’t have a significant industrial component, the peak load comes between 5 p.m. and 8 p.m. when people get home from work and turn on all of their appliances.
Complicating things further is that most of the solar power of a grid-tied system is not used by the homeowner but is fed into the grid during daylight hours and “normal” electricity is pulled from the grid by the DG owner the other 12-18 hours of the day. Therefore, the DG owner actually uses mostly power plant-generated electricity, not solar panel generated electricity. In states without hydroelectric, nuclear or significant natural gas use, the “normal” electricity can be quite dirty and inefficient.
Lots of coal in the mix
The pie chart below shows how electricity is generated in Minnesota, and how electricity is generated by the Dairyland Electrical Cooperative (a major supplier of PEC energy).
Dairyland Electrical Cooperative generation for 2017 and 2027
Wow, so in 2017 Dairyland generated 64% of its electricity with coal. A recent brochure for the DEC Alma power plant located in Alma, Wisconsin (which we have driven by several times on trips along the Minnesota/Wisconsin border) reads:
The Alma Site (Alma Units 1-5 and JPM) burns blended coal that arrives by barge, train, and truck from Wyoming and Utah. The barge coal moves by train to St. Louis and then up the Mississippi River about 575 miles to Alma. After being crushed, the coal is fed into coal mills, also called pulverizers, where it is ground into a fine powder. The pulverized coal is then burned in the boilers to generate steam. The entire steam cycle operates to rotate the turbine shaft, which is connected to the shaft of the electric generator. The rotation of the generator by the turbine is the origin of electric energy.
And generating electricity through the burning of fossil fuels (coal, natural gas, oil, etc.) is a tremendously wasteful process with only one-third of the embedded energy in the fuel being realized as electrical energy.
The U.S. Energy Information Administration calculates energy losses using British thermal units (Btu) and a “heat rate,” the number of fossil fuel derived Btu to generate a kWh of energy. As stated on the EIA website, “To express the efficiency of a generator or power plant as a percentage, divide the equivalent Btu content of a kWh of electricity (3,412 Btu) by the heat rate. For example, if the heat rate of a power plant is 10,500 Btu, the efficiency is 33%. If the heat rate is 7,500 Btu, the efficiency is 45%.”
Coal and oil had heat rates of 10,465 and 10,834 respectively in 2017 (~33% efficiency) while natural gas had a heat rate of 7,812 ( ~43% efficiency).
On balance, benefits of all-electric
From a general point of view it doesn’t matter that we do not use our solar energy directly. We are putting 100% clean energy onto the grid for someone to use, and that does eliminate the use of a corresponding amount of “dirty” electricity—even if that does not come at peak load for the electric company.
In going all-electric we eliminated direct on-site use of natural gas for heating, hot water, and laundry (dryer), but using natural gas most likely would have a smaller carbon footprint than using “dirty” electricity. For example, high-efficiency gas furnaces are available that utilize up to 95% of the embedded energy while the most efficient conventional gas-fired storage water heaters are Energy Star models with energy factors between 67% and 70%. So, we essentially exchanged the possibility of utilizing mechanicals with 65% to 95% efficiency (on-site natural gas) with mechanicals that are 33%-45% efficient (grid-generated electricity).
Now, before one throws in the towel, there are ways to put everything back in balance and remain with an all- electric house. Air-source (or ground-source if you can afford it) heat pumps are available, which increase the efficiency of electric mechanicals by 200%-300% and therefore make them equally if not more efficient than natural gas. Essentially they use electricity to take heat out out of the air (using refrigerant technology) so that for every 1 Btu you put into the system you get 2-3 Btu out (almost magical). Systems are now available that function down to -15 degrees F.
-This post is part of a series describing the construction of a net-zero energy house in Rochester, Minnesota, by Tracee Vetting Wolf, Matt Vetting, and their son Max. You can find their complete blog here. A list of their previous posts appears below.