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Paying for the Grid: A Review of Jersey Electricity’s Proposed Standby Charge for Commercial Embedded Generators
The Situation
In early 2017, Jersey Electricity (JE), the sole provider of electricity on the island of Jersey (United Kingdom), proposed a “standby charge” of £3.25 per kW-month that would apply to all new commercial electricity customers choosing to install embedded (behind-the-meter) generation of up to 50 kW of installed capacity. In May 2017, a deputy of the States of Jersey (SoJ) filed a criticism of the proposed standby charge that resulted in JE voluntarily delaying the imposition of the charge. Subsequent stakeholder discussions led to the appointment of the SoJ Department of the Environment (DE) to investigate the implications of the standby charge for the competitiveness of generation and supply in Jersey.
NERA's Role
The SoJ DE commissioned NERA to undertake such an investigation. NERA’s terms of reference required that NERA assess whether the proposed standby charge was “cost reflective” and consistent with the form of charge that would emerge in a competitive market. NERA considered whether the charge was likely to mitigate the problem of “inefficient grid bypass.” First, NERA identified certain limitations related to the design of the proposed standby charge:
It assumed all embedded generators had the same load factor, based on the expected output from solar photovoltaic (PV) facilities.
- It assumed all commercial customers consumed the same proportion (50%) of the electricity they generated at their own premises.
- It was not well-suited to thermal generators that tend to produce more energy than solar PV but that may provide some cost savings to the system.
- NERA estimated that, after making such changes, the standby charge would be £5.48 per kW-month, considerably higher than that proposed by JE.
NERA also recommended alternative solutions to the problem of uneconomic grid bypass. Those included: (1) restructure the prices all customers pay for electricity, setting tariffs that are more reflective of the balance between fixed and variable costs; (2) consider a more limited application of cost reflective charging structure for commercial customers only or for only those customers with embedded generation; and (3) measure production from embedded generation facilities separately from customers’ on-site consumption by installing an additional meter.
NERA submitted its findings in a report to the DE on 15 August 2018.
The Result
The NERA report was received well by SoJ policymakers, described as a “good step towards the Island creating an energy policy that is fit for the future” and as providing “a great deal of insight into what is a complex issue” (public comments of Deputies Carolyn Labey and John Young, respectively). On 1 May 2019, JE implemented its original standby charge proposal of £3.25 per kW-month for commercial customers with embedded generation.