True Costs/Benefits Of Solar Net Metering Will Require Updated Accounting Methods

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Originally published on LinkedIn.

Net metering is a compromise accounting method to accurately track electricity sent back to the grid. It allows utility customers who generate electricity on-site, usually from a solar PV rooftop system, to run their meter backward by sending the excess electricity generated back to the grid, or utility company. In turn, the utility company must pay the retail rate for the electricity sent back to the grid. This was done because it is the easiest way for the utilities to accommodate solar with their old meters and antiquated billing systems.

Simple. Right?

Well, not so simple. The complexity of the issues were completely oversimplified in a May 17th, op-ed by a utility lawyer in the Wall Street Journal, entitled “The Hole in the Rooftop Solar-Panel Craze.

Another article, in on May 21, 2012 by John  Farrell, entitled “Net Metering A Cost to Utilities Or A Benefit?,” depicts more of the cost/benefit of net metering to the utility.

The Wall Street Journal advertorial suggests that if we continue “net metering,” the power companies will lose so much revenue that they will need to spike rates. The losers: low-income customers who cannot afford to get a solar power system. Seriously, what a load of self-righteous crap.

On the other hand, the article suggested that net metering was a benefit to utilities. In fact, the real-life example used in New Mexico revealed that consumer on-site electricity generation helped the utility “avoid energy costs, line losses, capacity upgrades, and transmission costs worth over 15 cents per kWh.” In the end, the utility had a net benefit of 7.8 cents per kWh. This probably won’t hold true when solar is 5% of the grid.

In looking at the cost/benefit of net metering, it is complicated. But, we do need to consider the full array of costs and benefits to the retail customer and the utility.

Net metering was really created as a compromise to utility companies to account for energy sent back to the grid. As I said earlier: a compromise accounting method. It just assumed that the costs = benefits. It was never considered a subsidy as the utilities are claiming now.

The reason we have this compromise of net metering is that utilities have antiquated billing systems. In fact, much of their bill systems are programmed with Cobol-based software systems and then augmented with hand tabulations. Cobol systems originated in 1960.

No wonder utility lawyers and the Wall Street Journal depict such a simplistic analysis of the cost/benefit analysis.

If the utility lawyers want to start charging solar PV real-time pricing, they first have to upgrade their clients’ billing systems to handle the data. At that point, I would be happy to appoint an independent consultant to account for the full benefits and costs of net metering — offsetting any lost revenues to the overall system costs with cost savings on system upgrades and reduced operation costs — we can then get a more precise assessment of how this net metering nets out.

The bottom line: once the utilities actually enter the 21st century for real, I would be happy to move away from net metering. If net metering truly costs the utility companies more, the solar producers (and others) should pick up the tab. If net metering is a bonus to the utility companies, they should pay the renewable energy producers the real value for their solar electricity. Deal?

Life seems so much easier without the facts.

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Jigar Shah

is a co-founder at Generate Capital and the author of Creating Climate Wealth: Unlocking the Impact Economy, 2013 Icosa Publishing. Shah unlocked the multi-billion-dollar worldwide solar industry with a business model innovation (Power Purchase Agreement), not a new technology. This model created SunEdison, once the largest solar services companies worldwide. Jigar Shah has shown that business model innovation applied to the biggest challenge of our lifetime – climate change – will unlock a $10 trillion new economy. After SunEdison was sold in 2009, Jigar served through 2012 as the first CEO of the Carbon War Room — the global organization founded by Sir Richard Branson and Virgin Unite to help entrepreneurs address climate change. SunEdison and Carbon War Room proved that we could make positive change through business and financial model innovation in many industries. Today, as CEO of Jigar Shah Consulting, he works with global companies in a multitude of industries to deploy existing clean energy solutions fueled by new business models.

Jigar Shah has 9 posts and counting. See all posts by Jigar Shah

43 thoughts on “True Costs/Benefits Of Solar Net Metering Will Require Updated Accounting Methods

  • The power outages we have in Alberta typically occur in the heat of summer when all the coal power plants are off line for maintenance. Always, heat of day, always very sunny. If they wanted to offer spot prices, I’d be rich.

  • With the future grid be fed by most intermittent renewables. the highest value is achieved when the car charges each day when electricity is at its lowest cost.
    So that means, in many places, charging at work during sunny days.
    I can see a plan where the car’s software agent decides to charge at home or work depending on projected electrical cost that day. I can see a plan that rewards the car’s owner for giving back a few kWh when the grid requests the power from a connected car.
    In this scenario, the car would track all the use, and not perform charging/discharging in a way that would void the warranty.
    I think Tesla may have already installed the hardware to do this in their cars and chargers. I think Tesla has a master grid integration plan that includes their cars and powerwall, as well as SolarCity’s systems.

    • I’m doubtful about vehicle -> grid electricity. Vehicle batteries are almost certainly going to be more expensive than utility scale batteries. Utilities would have to pay for EV battery ‘wear and tear’.

      EVs will help the grid because they can charge off spikes and drop out when supply is low. But I suspect grid storage will happen at the utility level.

      • EV storage is a huge sunk cost. I suspect it can be monetized to the benefit of the owner without increasing battery expense or inconvenience. The manufacturer would need to allow it, and track it so as not to void the warranty.

        30% EV in LA County might be about 100gWh of storage.
        Consider California’s big storage initiative is 1.4gWh by 2024. That’s nothing compared to the terawatt of storage that might be driving around California in 50 years.
        Someone needs to build a SuperGigaFactory.

        • Tesla originally talked about how multiple gigafactories were going to be necessary by 2030. I bet that they were right.

      • Yes, stationary batteries have different requirements and trade offs. EVs first and likely long term biggest role will be in demand management.

      • $11 US a kilowatt-hour, that’s what the Australian National Electricity Market sometimes pays for electricity. That’s an opportunity that’s hard to pass up since all that might be required to sell electricity to the grid is some software. Of course, once we can actually get our hands on some 7 kilowatt-hour Powerwalls and other similarly priced home energy storage systems here, those $11 a kilowatt-hour opportunities are going to dry up pretty quick.

  • Jigar, I agree with you that solar is good for us, and good for the planet.

    Determining exactly how to apportion the costs and benefits will be extremely difficult. The Maine value of solar determination was about $0.30 per KWH, but included currently cost shifted environmental and health issues. Minnesota had a value of about $0.15 using some different metrics. New Mexico Power thinks the value of solar is about $0.03 per KWH.

    Good luck finding a ‘good’ balance point among all the studies.

  • I agree with Jigar that for low rates of solar penetration, rooftop panel’s are more than likely shaving a peak, and the panels provide a net benefit. At some point, ( although 5% seems low), electricity is going to be very cheap on sunny days around noon, and the solar panels may produce electricity at below average value – hopefully the grid will develop enough so that we can appropriately value the electricity – as solar panels continue to come down in cost, this may incentivize putting the panels on a western facing roof to produce peak power later in the day…

    • Germany is now getting less than 7% of its electricity from solar but has seen the wholesale cost of electricity fall drastically. And the fall first happened a couple years back when they had less solar.

      • Wow, I guess 5% penetration is a pretty good estimate of what it takes to move the market.

        • I’m guessing the way one could tell would be to look at the amount of very expensive NG peaking generation we use and then calculate how much solar it would take to knock that out of the picture.

          Some NG peaking plants run only a few hours a year. Very high cost.

      • They just need a bit more storage to cut the morning and evening peaks.

        Edit: Bob, What day is this chart from?

    • Yes. Power will be almost free for some hours many days. That is why EV charging needs to be flexible. A significant number of households will be using more electricity in their cars than their house.
      Night charging of EV will become expensive in sunny places as high baseload plants become a small fraction of generation.

      • You’re assuming that wind won’t provide ample late night electricity for charging.

        • I’m assuming that sunny areas best choice is to build a huge amount of solar to charge cars. Car charging will track wind too, of course. A big part of intraday grid management will be planning when to charge the cars.
          Optimal charging can be done with price signals, or the car owner having a service agreement with the electricity provider.
          As I said in another thread, it makes a lot more sense to put resources into policy and software than physical grid assets, such as utility scale batteries.
          Massively build out the least expensive intermittent renewables. Incent EV manufacturers and owners to do most of the leveling.

          • And I’m guessing that we’re going to see a lot more transmission happening west of the Rockies. The Southwest is likely to be sending solar north during the day and getting PNW and Wyoming wind back at night. A lot of the transmission line is already in place, a lot of it was built to move coal-electricity into the SW.

          • The wind in Vegas in the summer seems remarkable. I don’t understand why they are not running their summer AC peak on wind.
            But transmission is one of those things that is potentially overbuilt now under future assumptions that will turn out to be false.
            Look at Australia and their coal investments. Whoops. Just because transmission is “green” doesn’t make it a good investment.

          • Australia is not hurting because of transmission, but distribution spending.
            Whether it is wiser to overbuild capacity, install storage, or build more transmission will vary from place to place and those numbers will adjust as costs change.

            It looks like the Zephyr, a HVDC line tying Wyoming wind to the existing Intermountain Intertie and Pacific Intertie is going forward. And there’s recent action in Texas that improve the chances for the Tres Amigas exchange which would allow large amounts of power from Texas/Oklahoma wind to flow westward.

  • There has been so much talk and calculation around the cost of electricity and net metering and battery storage etc, Some are trying to figure whether they will lose a penny per kwh if they went solar and storage. However the big picture is this: prices are reasonable these days for clean renewables and battery storage, reasonable, not bargain basement. Coal, absolutely must go, not because it costs a penny more, but because of environmental reasons. It is funny that people think nothing of downing a couple of cups of overpriced coffee, while they act like scrooge on the price of solar.

  • What is with the overly simplistic views on this (from both sides)

    Currently, yes, net metering is benefits the utility more than the value of the electricity. But the utilities do have a point – in the future as solar penetration rises and the duck curve becomes pronounced, net metering will be a subsidy for solar panel owners. For whatever reason, each camp only sees one side of the argument without realizing the big pictures.

    That said, what we really need is simply to break our electric bill into power costs and demand costs (like what is already done for commercial applications) with those costs varying throughout the day based on supply, demand, and the requirements on the distribution grid in place. Separate the costs and pay solar exactly what it contributes to the grid while also accurately charging for the costs they place on the grid. This would encourage solar where it is most economical – in the best orientation, as well as lots of load shifting technology.

    (With that, some back of the envelope calculations show that for both San Francisco and Austin, TX solar owners would be getting paid more than they are currently. In the future that would likely decrease, but so will the cost of solar and other load-shifting technologies.)

    /end rant

    • “Separate the costs and pay solar exactly what it contributes to the grid”

      That is not a single, completely defensible number. It’s a judgement of value in a complex system.

      Does solar contribute to grid stability or instability? The answer is both.

      • Right, and I think the best way to quantify that is by breaking the bill up into the multiple parts at various times of day. That way if solar is contributing excess to the grid at times it’s not needed, it won’t receive very much payment, but if it contributes during a time of peak demand, it will be compensated accordingly. Additionally, if the house has a high peak sometime throughout the day, that will be captured through the demand charges.

        I’m not saying they need to have a separate rate for solar – far from it. I think they need to establish charges for all of the actual costs they incur and then let the free market figure it out.

        • Power is generally sold in 15 minute blocks (IIRC). Just pay end-user the settlement price for that time block.

          • They could do that, however it wouldn’t compensate solar users who have a fairly flat demand curve for their contribution to the grid, nor charge those who have high demand spikes for their load on the grid. While this is fairly negligible for households currently, as solar becomes more prevalent and lowers overall demand, the demand spikes will comprise a larger difference from the home’s base consumption.

            That said, I’d still support that as it’s a drastic improvement over what we currently have.

  • As long as you have vertically integrated commercial monopolies you cannot expect fair cost/benefit calculations on distributed power production that is a threat to their monopoly. The only solution is to unbundle. Grids should be strictly regulated, or better publicly owned. Production and retail should be opened to the free market.

    • Exactly. Investor owned grid managers who also make money as power generators will always be gaming the system to the benefit of their owner.

      • Agreed. if all power generators were to compete, then the incentive for the grid company would be to choose the cheapest – I wonder who’d win/lose on price? 🙂

        • Retail should be a seperate company too.

          A simple analogy is food: the consumer buys the food from the supermarket (the power retailer). The supermarket buys the food from different manufacturers (power producers) it gets transported over the road (grid) that is in public hands.

          A proper price on pollution wouldn’t be a bad thing either.

        • Cheapest would be fine, as long as externalities are properly accounted for, for example by taxing emissions.

          Also, customers may have preferences other than cost, some (like me) selecting for example green or CO2-offset energy.

    • I agree that transmission/distribution should ideally be considered public infrastructure and owned by the city or community it serves, but unfortunately, save for places already enjoying municipal utilities, I don’t see this happening anytime soon.

      As an already-deployed, somewhat intermediary measure, decoupling, ie making the utilities revenue independent from their sales, has proven quite effective too:

      Look at California’s utilities for example: they promote conservation, provide rebates for energy-saving appliances and improvements, including grid-tied solar. Even where PV rebates have now run out, those decoupled utilities certainly don’t seem to mind customers going solar, very much the opposite in fact, e.g:

      • In Germany the transmission grids iare in the hands of three commercial companies. However, they are not allowed to also own power production units or to sell electricity and their finances are strictly regulated. This also works reasonably well.

        • Thanks for the insight. My comment was in the context of the US, where utilities typically (and for the foreseeable future) represent both generation and transmission; I trust that keeping those separate is a good thing.

          • I understand that the situation in the U.S. is different than in Europe. And I find it surprising that most articles on CT just accept the current US monopolistic utilities as a given thing that cannot be changed. Especially since it goes against the free-market ideology that dominates the U.S. economic/political agenda. That is why I keep on repeating that there are alternatives to the outdated U.S. model that could benefit costumers, renewable power producers, the environment, and the health of all citizens, especially if external costs are taken into account.

            You could argue that the current “pay-for-policy” electoral system in the US doesn’t allow any change, because the utilities pay the politicians too much. I agree this will delay change, but I do not think it can stop it in the long run. Even tea-party-people are turning against the current utility model so there is pressure from the left and the right to change the system. Film studios and telephone companies have been broken up, time for the utilities to follow.

          • The US right-wing advocates for something they call the free market, but what they really want is a “me market”. They want to eliminate costs and market barriers for their interests but have no problem tolerating, even creating, market barriers to others.

            Look how only right-leaning states have blocked Tesla from engaging in direct sales. Got to protect the good ol’ boy car dealers and their political donations.

            The US has a mix of utility models, and it’s very unlikely there would be a federal effort to standardize.

            Monopolistic utilities exist in some places, not in others. Monopolistic delivery systems are the standard, world round. As far as I know no one has multiple sets of wire running to their houses in order to provide them a delivery choice.

            The issue is – does the delivery system company also control electricity sales and to what extent. Some delivery companies also control all sales and are (generally) heavily regulated. Others own generation but allow independent companies to sell, using the delivery system for a fee. And other delivery companies are publicly owned.

          • “The US right-wing advocates for something they call the free market, but what they really want is a “me market”.”

            The impression that I get from the press is that that there are roughly two major groups in the American right: On the one hand vested corporate interests who selectively shop in the conservative/free-market/libertarism ideology when it suits their needs, think about the Koch bros and their many “thinktanks”. On the other hand, the people who actually believe the ideology and act as the useful idiots of the first group. However, at least some of the useful idiots are waking up, see the rise of the green tea party, which has been reported about here on CT.

            “The issue is – does the delivery system company also control electricity sales and to what extent.”

            This is exactly the point I have been trying to make all along: If you unbundle/split up/break up the utilities such that the grid becomes a separate unit with other owners as the power producers and sellers/retailers there is no more incentive for them to discriminate against renewable and distributed production.

          • Your second paragraph is pretty much dead on, based on what I know. The Republican party is largely financed by corporate money but corporate interests don’t control enough votes to win elections. So the corporate wing makes an alliance with several groups including the most financially conservative, the most easily scared, and the most ethnocentric whites.

            Your last paragraph is correct, IMO, but that does not mean that there is a large movement to divide utility companies into producers and distributors. Or really any movement at all.

          • Time start one!

          • My hasty writing is going to kill me some day. The previous comment should of course be:

            “Time to start one!”

  • Once again the Utility Companies with their outdated business practices are huffing and puffing trying to keep the true economics of solar power from being known

  • John: We need a lot more information on avoided costs to the utilities. A discussion of Avoided past corporate responsibility for one.Please include the societal costs of current fossil fuel extraction, exportation, foreign involvement and environmental (health) issues. Foreign intervention has been closely tied to energy national interests.
    Recognizing community solar may be more efficient than rooftop solar should also be discussed.
    A discussion of pay, benefits and passive investor profit should be factored in to the consumer stake in what has been perceived as a more democratic source of energy production.
    Finally with what is perceived to be a more stable source of domestic energy fuel supply will the consumer see a decrease in his/her monthly bill, or are we going to pay the suppliers the same for solar continuing the wealth disparity in America..

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