Companies selling PV systems are concerned that if utilities add a set fee for solar customers to remain connected to the grid to take in electricity at times when the sun isn’t shining, or if utilities decrease the retail credit for the times when customers send their excess generation back to the grid, people will be less likely to put panels on their roofs.

Net Metering - Doing it Right

Pierre Bull | Natural Resources Defense Council


Please explain the basic concepts of net metering as it is implements today?

Under net energy metering, also sometimes referred to as NEM, utilities credit their customers who use rooftop solar panels to generate much of their own power at the full "retail rate" for any of the solar power they supply back to the local utility grid.


Why is net metering controversial?

Some utilities contend that solar photovoltaic (PV) panel system owners are not paying their fair share for use of the grid– in a majority of cases, customers with rooftop solar systems can zero out their monthly utility bill with the retail credit they receive for their “excess” solar energy that they are able to feed back into the grid. Companies selling PV systems are concerned that if utilities add a set fee for solar customers to remain connected to the grid to take in electricity at times when the sun isn’t shining, or if utilities decrease the retail credit for the times when customers send their excess generation back to the grid, people will be less likely to put panels on their roofs.


Why are states altering their net metering policies?

Several states have an overall program size limit for net metering and a handful of those states, namely California, are nearing their program limit. Thus to comply with applicable state law, state utility commissions must decide what changes to make to net metering (including keeping the status quo). In the vast majority of states with net metering – including those states with and without overall net metering program limits – utilities are beginning to see early signs of accelerated growth of distributed (onsite) solar going on net metering rates and are actively lobbying their regulators to change net metering policies in order to avoid potential unexpected loss of customer revenues.


What are the ramifications of changing the NEM rates?

Changing NEM rates affects the financial bottom lines of solar industry developers, rooftop solar customers, all utility customers, and utility companies. If the rates are lowered or altered to move away from volumetric ($ per kilowatt-hour) billing design, customers are less likely to add rooftop solar as well as invest in new energy efficiency. But rates can also be changed to encourage customer adoption of clean energy like energy efficiency, demand response, energy storage, and rooftop solar to benefit the electricity grid. Right now, all the solar coming into the grid means utilities don’t have to burn fossil fuels at those times to generate electricity, which also avoids the climate-warming carbon pollution that comes with it. But much higher amounts of solar generation at any scale spanning rooftop arrays to massive solar farms on the grid -- which must be in perfect balance at all times in order to deliver electricity to everyone -- means that utilities must begin to treat electricity supply and demand differently to accommodate the solar generation. This is now the case in Hawaii and California. On the supply side, utilities are retrofitting a number of their existing fossil fuel power plants to work in tandem with solar to keep the grid balanced. And on the demand side, utility commissions are looking into adopting new rate approaches for their customers with approaches such as time-varying rates that establish seasonal and daily pattern shifts in rates, as well as modest charges for customers who demand high capacity draws from the grid. These rate design changes preserve the important volumetric-based price signal for utility customers while encouraging more efficient use, storage, or movement of excess solar production to places and times that demand it in order to increase its value.  


How does the controversy affect most solar customers?

Most solar customers, particularly homeowners with rooftop solar systems, should be aware of the issue. Solar customers should be encouraged to reach out to their solar supplier and/or installer as well as their local utility to get up to speed on the potential risks. Utility commissions in Hawaii and Nevada went about making changes to NEM with limited stakeholder input and created unnecessary market uncertainty by forcing drastic changes to go into effect immediately. Chiefly these were rate design changes that included significant new customer fees for NEM customers -- fees that do nothing but add costs to NEM customers’ monthly utility bills, regardless of the amount of energy they use in a given month. Though Hawaii and Nevada made rash decisions to dramatically alter their net metering policies to the detriment of rooftop solar energy customers, most solar customers should not panic that the compensation they receive for sending excess energy back to the grid will mean their onsite energy generation is no longer valuable.  


How does it affect the solar industry and adoption of solar energy in this country?

Poll after poll continue to show that Americans love solar, regardless of political leaning and geography. It is an energy technology that continues to see drastic cost declines, putting it on par with fossil fuels nationwide – and indeed in many locales solar is already the cheapest new energy option on the market. Customer adoption of solar will continue to accelerate in states with good net metering policies along with accompanying swift and low-cost permitting and utility interconnection processes. State utility commissions ultimately hold the reins to decide where and how to guide net metering policy in their respective states. Nevada and Hawaii yanked the reins to all but completely stop the rooftop solar market in their states. California and New York are wisely choosing to continue mushing ahead, steering the market to move in new directions to draw even more value out of net metering rates and encourage customer adoption of all forms of clean energy.


If net metering needs to evolve as quickly as solar is growing, which states are doing it well?

CA and NY both have good approaches to NEM. They leveraged well-established methods to study the existing market and utility customer impacts of NEM in their states by taking a holistic view of overall grid benefits and costs as well as making reasonable expected predictions for near-term market growth.  Even in solar-friendly California, a major 2013 study showed that “all-in” consumer and grid costs were not going to surpass the benefits for at least five years even under the highest trend lines of rapid rooftop solar adoption. California is now making incremental changes to evolve NEM, providing the rooftop solar market with ample lead time for when the changes will go into effect and certainty as to how much they will affect business bottom lines and customer utility bills. California realizes that rate design changes do affect customer behavior. If done well, rate design change under NEM can signal customer adoption of additional grid-enhancing clean energy measures like demand response (compensating customers to shift times of energy usage), energy storage and energy efficiency.


Which are doing it not so well?

HI and NV have both done a poor job to evolve NEM. Their respective state utility commissions completed market and utility impact studies with results showing that all-in benefits to the utility grid and customers outweighed the costs under net metering. They had ample time to consider making changes to evolve NEM and allow stakeholders sufficient opportunity to process proposed rate design and other programmatic changes. How decision-making gets done at state utility commissions matters a lot for an issue as complex and broadly reaching as net metering. In addition, HI and NV moved forward with punitive utility billing fees for rooftop solar customers in order to balance out solar “versus” non-solar customers through an outdated regulatory accounting system.


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