Load Retention Rates

The benefits of generating electricity on-site are more than just economic (i.e. industry can improve reliability, reduce emissions etc. by investing in on-site capacity) and from time to time large industies will examine or rexamine the feasibility of trying to capture these benefits. When the economics stand up the industry will often advise the utility of its intent to invest in on-site power only to be notified that the utililty is prepared to offer the industry a lower price per unit of electricity if they agree not to invest in the DE project. Lower rates are often offered despite the fact that the price of power for industrial custumers is typically already much cheaper than the price paid by commercial or residential custumers in the same region. Under circumstances such as these the further discounted rate is often referred to as a ‘load retention rate’ and is in some cases a major barrier to investment in clean decentralized energy technologies.

Industrial end-users typically account for a large proportion of the electricity sales of electrical utilites. Utilities are thus dependent on industrial customers to buy much of the power the utility generates. If an industrial customer decides to begin generating its power on-site the utility can be left in an awkward position or in some cases a situation where the utility is no longer economicly viabile. After a large industry leaves the customer base utilities can be forced to increase rates for other cusotmers in order to ensure income is sufficeint to meet financial obligations. As a result offering load retention rates is often a very attractive solution politically.

Nevertheless, offering discounted rates to ensure large customers remain as customers does promote waste.Many economically viable decentralized energy projects have been postponed or cancelled once the rates have been reduced, thus eliminating the many efficiency gains that the DE project could have offered.