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July, 31, 2016 Net Metering: Your 3 Point Primer

If you produce your own electricity in the US today – say – through solar panels on your roof, you are likely able to sell your excess power from those panels back into the electrical grid through an arrangement with your electrical utility called “net metering”. Without net metering, excess energy from your solar panels is simply lost and wasted (unless you are one of the lucky few with a battery in which to store it). Visual learners check out the graphic here.

 

So why is net metering so controversial? Where does the debate stand? Below we outline 3 key points to understand, and how to stay informed on the issue:

 

1) Net Metering has been a leading driver of renewable energy adoption

The name of the game is economics. The better the value, the more people will invest in renewable energy for their home or business. Using a reasonable example from this Greentech Media analysis, an average homeowner with solar panels in California can expect $700-$1,000 a year selling excess solar power back to the grid through the current California net metering program. If the expected life of solar panels is 30 years, the average value for a California homeowner stemming directly from net metering over that time will be in excess of $25,000. When your goal is mass adoption of renewable power sources, a $25,000 incentive per homeowner is a game changer. While it is difficult to prove exactly how many solar adopters wouldn’t have installed solar without a net metering incentive, the Energy Information Administration reports net metering customers in the US grew from 7,000 to 700,000 between 2003 and 2014. 100X growth in a decade suggests that, yea, the people like it.

 

2) Net metering is almost everywhere in the US, but varies widely by state

The first state to introduce net metering was, believe it or not, Idaho in, believe it or not, 1980. However, it was the Energy Policy Act of 2005, notably passed by a Republican Senate, a Republican House, and signed into law by President George W. Bush, that required all state regulators to at least consider rules mandating public electric utilities offer net metering on request to their customers. Differences in net metering programs state to state can include caps to the % of electricity customers that can participate, caps to the size of solar systems that can be included, the rate at which solar users are credited for their energy, and the structure of monthly credit rollovers. As of this writing, when grading states on their net metering programs, Freeing The Grid assigns 20 As, 13 Bs, 5 Cs, 4 Ds, and 9 Fs (50 states + Washington D.C.). The good news is that 20 As is the most Freeing the Grid has assigned since beginning their grades in 2007. The bad news is that several states previously receiving As and Bs, such as Nevada, Hawaii and Wyoming, now receive Ds and Fs because state regulators have rolled back their net metering programs in the face of pressure from utilities.

 

3) Net metering directly threatens the traditional utility business model

As mentioned above, utilities don’t like net metering. And without going too far down the rabbit hole, here is why: utilities are basically regulated monopolies and net metering hurts their bottom line. The bargain made is that utilities get to be the only entity to sell electricity in their area. But, instead of allowing utilities to charge whatever price they want for their electricity, the government appoints public utilities commissions of ~5 officials to determine fair electricity prices for each utility. Over time, “fair prices” have come to mean allowing most utilities to make a profit of about 10% on their expenditures. So what does this mean? It means utilities are incentivized to build as many new power plants and transmission lines as possible, regardless if they are necessary, because the more utilities spend on new infrastructure the larger their 10% profit is. This great piece from the Wall Street Journal demonstrates this broken system. Any program reducing the need for investment in new power plants directly hurts utilities’ bottom line, making the program an unwelcome threat to the utility. As such, utilities argue against net metering by saying things like, “Net metering unfairly shifts costs to non-solar energy customers”. This should be taken with a grain of salt, due to the obvious conflict of interest. Multiple sources have made efforts to refute such claims, including Media Matters for America here, and in 2014 a report prepared for the Nevada Public Utilities Commission estimated net metering in the state from 2004-2016 would actually create a $36 million benefit for non-solar energy customers over the life of the systems. Check out the links and decide for yourself. In addition, it should be noted there are efforts across the country to update the utility model by “decoupling” them, or changing their incentives so they are no longer driven to grow indefinitely. Where decoupling has occurred, it should be noted, utilities have been far more cooperative with net metering and other energy efficiency programs.

 

SO WHAT?

The so what is that as utilities feel increasingly squeezed to increase profits from shareholders and to lower prices, increase efficiency, and ease renewable integration from most everyone else, tensions will continue to rise. And when tensions rise change occurs. According to the North Carolina Clean Energy Technology Center, in just the first quarter of 2016, 35 actions were taken by 22 states related to net metering policy changes. The policy landscape is shifting, and fast. How will it end? Nobody can say for sure, but if you’re serious about a future in solar you need to stay on top of this hot button issue.

 

STAY INFORMED

The easiest way to stay informed is to check out the latest “50 States of Solar” quarterly report from North Carolina Clean Energy Technology Center, here. In fact, they do a great job on an array of topics, so while you’re at it you might as well just check out the rest of their great work.

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