Exporting Electricity - The Power Grid as a Market

As described in more detail under Electrical Grid Basics, the U.S. electric supply system achieves much of its economy and reliability through the highly interconnected nature of the power grid. With this system, large amounts of power can be moved long distances between major generation facilities and major cities or industrial load centers. With the advent of smaller distributed generation technologies, the grid becomes not only a means of supplying electricity to customers, but also a means for users to sell electricity back to the utility.

A number of states have "net metering" laws that essentially (and often literally) turn the meter backwards if on-site generation exceeds the on-site load. The advantage of this arrangement is that the generation displaces retail kilowatt-hours, which are always more valuable than wholesale kilowatt-hours. A current listing of states with net metering laws can be found in the Net Metering Policies section of DOE's Green Power Network Web site, and on the Database of State Incentives for Renewable Energy (DSIRE) Web site. (DSIRE is more complicated to use, but is kept more up-to-date, and often provides links to the relevant state Web sites and documents.) While the limit for on-site generation varies by state, current power caps typically run from about 10 kilowatts on the residential side to about 100 kilowatts for commercial facilities.

For large wind farms or other "merchant" power facilities designed to sell power primarily into the national electric grid, power purchase rates will be lower and must be negotiated with the purchasing utility or regional system operator, on a case-by-case basis. The Public Utility Regulatory Policies Act of 1978, and more recently the Federal Energy Regulatory Commission's Order 888, require utilities to purchase power supplied by independent power producers (IPPs). The price (or rate) that utilities are willing to pay for this generation is a matter of negotiation with the local utility. At present, there are no national standards regarding price, as utility distribution and retail activities are generally regulated on a state basis. The price paid for IPP power will depend on both the purchasing utility's perception of the IPP power reliability, as well as their short-run marginal avoided cost for cutting back on power generation from other sources.