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Published on June 1st, 2015 | by Jigar Shah


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

June 1st, 2015 by  

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 CleanTechnica.com 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 CleanTechnica.com 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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About the Author

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.

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