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Paying for electricity by the kilowatt hour: Is the end coming?

By: Smart Grid Markets |

We’ve been paying for electricity by the kilowatt hour for years, but is that concept no longer working and no longer fair today? That was the context of some discussion at the Bloomberg New Energy Finance Summit recently held in New York City. The only certainty seemed to be that how we pay for electricity is going to change.

According to an Energy Korea news story, the dialogue seems to have started when a representative from a German utility asked how long customers would continue paying for power by the kilowatt hour. Urban Keussen, SVP of technology and innovation for Germany-based E.ON, observed “I think we’ll see something similar to telecom.” He was referring to the numerous phone plans that have dropped paying by the minute in favor of flat fees.

Despite its less than sunny weather, Germany is ranked as the world’s leading solar power producer with 30 gigawatts of installed capacity. And even though the feed-in tariffs that have made solar so attractive to so many are dropping, rooftop solar is still a good option for consumers. The problem is that leaves other consumers to pick up the tab for the electric network.

The story notes that regulators and utilities have talked of re-working the payment model for a long time, and it’s clear participants at the summit have been thinking about it.

As Tom Blalek, chief smart grid engineer for San Diego Gas & Electric, said “We’re looking at unbundling rate designs.”

While there were no concrete suggestions for what could be coming, one observation was that higher connection fees are definitely going to be part of it.

And it’s not just about solar. New York chairman and energy policy and finance Richard Kaufmann said earlier this year that in at least a dozen states, big commercial customers are moving to their own combined heat and power (CHP) installations rather than pay a utility for electricity.

Meaning? A smaller number of people paying a larger share of the cost, similar to the German situation.

Jon Wellinghoff, FERC chairman, also was at the meeting and shared thoughts similar to Kaufmann’s: “We’ll see natural gas in the form of CHP as the next distributed generation.” And that means, whether it is solar or CHP, “utilities won’t be able to recover fixed costs.” He agreed that larger fixed fees will be a certainty in the future.