Exit Fees

Sometimes a potentially beneficial DE project can be halted due to unreasonably high ‘exit fees’ charged by the incumbent utility (also known sometimes as ‘stranded asset fees’ or ‘stranded cost charges’).

This obstacle is most relevant to very large DE installations that require large amounts of electrical energy. The problem is also more prevalent in traditional electricity markets that have not yet seen restructuring or abolishment of vertically integrated utilities. In some areas where electricity market restructuring has already occured exit fees have already been deemed illegal.

The obstacle arises when a large company examines for the first time the option of generating a large percentage of electricity on-site rather than buying all its power from the utility as it has in the past. In many utility jurisdictions a small number of very large customers can account for a large proportion (sometimes more than half) of power electricity demanded from the utility. The utility thus has a strong incentive to keep large customers- especially if the utility has recentlly spent large amounts of money on new generation or wires infrastrucutre especially to meet the power demand of the large customer(s). As a result a utility will sometimes charge a parting customer very large fees in an attempt to disuade them from shopping for their power elsewhere.

Certainly in some cases utilities have a legitmate claim to some compensation- especially if the industry in question recently encouraged the utility to invest heavily in order to meet the industry needs. The main problem with exit fees is that they can create a disincentive to invest in truly efficient DE technologies such as industrial cogeneration- which requires investment in onsite power capacity rather than remote utility owned capacity in order that the efficiency gains of heat recovery can be captured.