Household- and community-level energy independence
Net metering is the reimbursement for excess distributed energy generation supplied back to the grid. At their core, net metering policies are capable of helping to democratize energy generation by empowering individuals and communities to “sell back” to the grid which incentivizes lower operating expenses and more conscientious consumption of kilowatts hours of energy. While net metering is not exclusively applied to solar generation, solar is by far the most prominent household generation technology deployed today. CRES Forum believes in a nondiscriminatory / all-of-the-above approach to energy and therefore supports policies that also allow for generation from: wind, combined heat and power, biomass and biogas, natural gas, coal, waste-to-energy, geothermal electric, small hydroelectric, and even tidal or wave energy. Ultimately, the energy supply chain should be economical for the ratepayer base, resilient and reliable.
Net metering policies vary state-by-state
As of August 2017, net metering at the full retail rate was available to most customers within 40 states and D.C. Net metering has been discontinued in three states over the past year and reform proposals are being considered in several other states. In true federalist fashion, this is a state-by-state public policy effort and augmentation cycle.
Figure 1: Net metering regulation as of August 2017 by state (Source: Sustainable Energy in America Factbook 2018)
There are many policy variables at play with the design of net metering policy. Each state has taken differing approaches with variations in rates and capacity limits. Therefore, at certain levels of solar penetration (i.e., market share) it is natural for adjustments and reforms to be needed. These policies should be structured in such a way that allows for flexibility in order to adequately respond to changes in the market.
According to the 2018 Sustainable Energy in America Factbook, Arizona, Indiana and Maine formalized plans to transition away from retail-rate net energy metering in the past year, joining Hawaii, Louisiana and Nevada. The replacement schemes vary:
- Arizona will compensate small-scale photovoltaic systems at the five-year-average utility-scale power purchase agreement (PPA) price, and only for 10 years;
- Indiana will only offer net metering to systems connected before 2022; and
- Maine will phase down the value of a net metering credit by 10% each year starting in 2018
However, many states with policy objectives to increase solar penetration have no plans to transition away from retail net metering.
Retail vs. sub-retail or wholesale rate
There is fervent and ongoing debate between clean energy companies and utilities about the rate that distributed generation customers should be compensated at for their net power. The critique on the retail rate is that it is a bundled cost of energy generation, transmission and distribution. The argument is that the retail rate allows residents with solar energy to pay less for grid infrastructure operation and maintenance. Customers who have not equipped their homes with solar are therefore indirectly subsidizing customers who financially benefit from net metering. There is also data to suggest that solar customers are more affluent than the average ratepayer, making this subsidy a regressive policy outcome and therefore inherently anti-free market. However, to stimulate growth in the solar sector, especially when solar penetration is limited, the retail rate is often the necessary starting point to make the programs work for households.
As a policy solution to this contentious and lingering issue, CRES believes that in the long run a rate closer to the wholesale rate is desirable. Such a rate would treat homeowners and communities generating power more like other distributed generators, but also compensate for the use of private capital and the benefits of distributed energy generation.
To combat lost revenues from retail rate net metering, utilities have sought to increase the fixed charge portion of customer bills. These fees hit customers who use the least energy the hardest — primarily lower-income households and seniors on fixed incomes.
A recent trend in several states has been the transition to a net billing or “value of solar” tariff structure. Net billing allows customers to generate electricity for on-site or personal use and sell any excess energy to the utility company at wholesale or “avoided cost” prices, while purchasing power at the retail rate. As a result, the economics of projects change and the payback period is longer than under traditional net metering. For example, the credited rate is, estimated between 40-60 percent lower than the retail rate.
Efficiency and reliability vs. personal independence
Distributed generation offers ratepayers greater control over their electricity costs. This principle should be encouraged, under the idea that “customers have a right to reduce their consumption of grid-supplied electricity with energy efficiency”. However, concerns for efficiency and reliability should not be ignored in state policy. For example, while rooftop solar projects take advantage of “idle” private property for distributed power generation they are usually more expensive per kW hour compared to utility scale systems, because there are economies of scale. While there are benefits to a decentralized energy grid funded by private investment it is not the most cost-effective way to transition to a and ever-expanding renewable energy grid. Some states subsidize more than 100 percent of costs, which raises concerns for fiscal responsibility and longevity for the policies.
There is no single best approach to net metering. CRES Forum supports the rights of all customers to make energy choices in their best interest and supports states’ rights to establish policy to assure resiliency, reliability, and affordability in the energy system. As policy-makers revisit state net metering policies, CRES Forum recommends the following.
- Put people first. Policymakers should oppose any legislation or regulations that limit customers who want to generate their own energy, such as barriers to deployment or renewable energy caps/net metering capacity limits. Customers should be fairly compensated for energy they generate and supply to the grid. Furthermore, policies must protect private property rights and limit financial risks.
- Avoid barriers to new technology. The structure of a net metering policy should be technology neutral and should therefore avoid barriers to future technologies.
- Evaluate the cases for retail reimbursement vs. net billing. In many cases, traditional net metering with customer reimbursement at the full retail rate is appropriate. However, CRES Forum supports net billing (or VOST rates) that credit the customer at the value of the energy they have generated, separate from distribution and transmission charges. This approach addresses the economic concerns of crediting customers at the retail rate. Shifting to a net billing structure may help limit the need for increased fixed charges.
Ultimately, CRES Forum supports a state-by-state policy discussion as solar and other renewable energy technologies mature and get dispatched to the grid.
Updated: July 2018