Review Of Net Metering Studies Finds Utilities Underpaying For Solar Electricity

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Originally published on Cost of Solar.

If there’s one aspect of residential solar that the anti-solar crowd, especially utility companies, loves to gang up on, it’s probably net metering. You could argue that the 30% Federal Residential Renewable Energy Tax Credit is right up there on the list as well, but for some reason a year-end tax credit seems a lot less contentious than the idea of your neighbor selling her excess solar electricity production back to grid at a fair price, so net metering tends to be one of those anti-solar talking points that people think they understand.

What is net metering? The practice of net metering allows the owner of a solar energy system, such as a standard solar photovoltaic panel array commonly seen on residential rooftops, to be credited for the electricity their system sends back onto the grid. The practice essentially runs the electric meter backwards during periods of high solar production / low electric consumption, because optimum solar electricity production happens during the day, yet many solar homeowners also use the least amount of electricity during that time.

During the day, excess solar electricity produced by the solar array flows back onto the grid, where it is used by those who are drawing power at that time. When the sun is down and the residents are at home using electricity, they pull power from the grid, like any other house, but because their solar array has been crediting their account with electricity production all day long, they only pay the net difference between their solar production and their electricity consumption.

While it might be nice to think that the neighbors are sitting around counting all their solar money from their rooftop panels, it’s not nearly as lucrative as it seems (though it certainly makes many solar homeowners’ utility bills rather low), and unless you’ve got a veritable solar farm out back, a home solar system with a net metering agreement isn’t exactly a get-rich-quick scheme. According to the Solar Energy Industries Association (SEIA), the average residential solar energy system only sends out between 20-40% of its output to the grid, and this exported electricity goes to serve nearby customers’ electric loads.

Opponents of solar net metering like to argue against it by proclaiming that the utilities are forced into paying retail prices for electricity they could get elsewhere at a cheaper cost, that other utility customers have to pay a higher price to subsidize the net metering program, that solar homeowners are using the utility’s infrastructure as an energy storage program without having to shoulder the costs of it, and that it’s not sustainable once large numbers of people go solar. But a recent review of 11 net metering studies found that if anything, solar energy is undervalued, and that it delivers benefits far beyond what the owners receive in net metering credits.

The review, from the Environment America Research and Policy Center, looked at 11 previous studies of net metering’s effects on both the grid and on society as a whole, all of which found that owners of grid-connected solar arrays offered net benefits to the electricity system, including reduced environmental compliance costs, reduced costs in capital investments, and in avoided energy costs. In particular, the studies determined the median value of solar power as being “nearly 17 cents per unit,” which contrasts with the US average retail electricity rate of about 12 cents per kWh, which means that not only has solar net metering not been harmful to markets, but that utilities have actually been underpaying for the use of this solar electricity.

“The solar studies reviewed in this report confirm that huge amounts of solar have already been developed without paying the full value that solar brings. Not only does that mean that solar customers have likely been subsidizing non-solar customers and the utility, but that over the long term, continued development of solar promises downward pressure on electric rates for all.” – Karl Rábago, Executive Director of the Pace Energy and Climate Center

In addition to the more obvious solar benefits, such as avoided energy costs and reduced capital investment costs, the review also pointed to distributed solar as being important in grid resiliency and in helping to stabilize electricity prices by mitigating some of the fluctuation in fossil fuel prices, thereby reducing financial risks and saving money for all grid users.

The review also makes a great case for the increased and widened adoption of net metering policies in order to keep up the momentum of solar growth in the US.

“Net metering is a critical tool to ensure fair compensation for owners of solar energy systems and to continue to fuel the growth of solar energy. Public officials should support and strengthen net metering as sound public policy to stimulate private investment and job growth, and to encourage utilities to diversify and strengthen the grid.” – Shining Rewards

The document suggests that states should “lift arbitrary caps” on net metering in fast-growing solar markets, should include environmental and societal benefits when evaluating the benefits and costs of net metering programs, “consider the simplicity of net metering” when looking at programs that will compensate customers for their solar production, and “ensure that all people can take advantage of net metering policies” with virtual net metering programs for homes that aren’t able to install solar.

“While some utilities claim they’re subsidizing solar panel owners, our report shows the opposite is probably true. If anything, utilities should be paying people who go solar more, not less.” – Rob Sargent, co-author of the report, and senior program director at Environment America

The full review is available as a download from Environment America: Shining Rewards – The Value of Rooftop Solar Power for Consumers and Society

Reprinted with permission.

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50 thoughts on “Review Of Net Metering Studies Finds Utilities Underpaying For Solar Electricity

  • The obviousness of the bottomline: less revenues for the electric utilities when homeowners have solar compared to when they don’t have them. No matter how you justify it with other scenarios. Utilities will be losing a chunk of their revenues to solar. Show me a calculation that the utilities will earn more profit when many homeowners install solar.

    • For every 1 kWh delivered to your house, the utility has to create 4 kWh (due to transmission losses and such). If the 1 kWh goes straight to your neighborhood the utility company just saved 4 times that in production. As long as there is a healthy mix of solar and non solar customers, the utilities benefit a lot! As more and more people go renewable, utilities can think about changing their business model. It wouldn’t be the first time an industry had to think a little different. They can get in the business of distributed storage.

      • Thats true for primary energy, but not transmission losses. Transmission losses are much less. Primary energy means the FF burned waste a lot of energy as heat to make electricity.

        I would prefer a utility monopoly not be allowed to operate in a private market. Get rid of the utility monopoly privilege and make them play fair. Otherwise they are back to taking advantage of ratepayers like they do now.

        There is no reason to keep the system the same. Everything is changing. They have to also. In a sense, the don’t really die any more than horse and buggies die. They get replaced by a new infrastructure. Just like wristwatches, schedulers, and phone booths got replaced by smartphones,

        The players might change, too. Just like Kodak and Minolta. But that doesn’t matter and its pointless to try to stop it. Some of the utilities might not survive, either.

        Those that follow trends convert from Kodak jobs to Tivo or whatever new technology presents opportunity. Gold watches and 45 year careers don’t exist anymore.

      • That is a statement you pulled under your butt! You are implying that transmission losses are 75% when in fact it’s only about 10% in worst case. So utility has to make 1.11 kWh at the source to deliver 1 kWh to the house!!!

        • Most generation is about 40% efficient, with 10% transportation loses, you get maybe a 3 to 1. So you burn about 3kwh of coal to deliver 1 kwh of electricity to the home wall socket.
          Now consider all the coal train cars and the mountains of coal ash, roof top solar looks good for people.

    • “Electric utilities will have to scale back their plans, layoff workers, and concentrate on making and maintaining a smarter grid in order to remain relevant.”

      Perhaps, and perhaps not.

      Utilities are likely to lose market share to end-user solar but gain market share as EVs come online.

      • Many of my friends installed solar because they want to switch to plug-in cars. In effect, they order large enough system to cover their household needs and energy for their daily commute to work as it would make a lot financial sense for them. So the pay-off for solar is even faster. This scenario might be more common, so even if EV’s get wide adoption, and so does solar, and it could still tip towards losing revenues when EV’s become ubiquitous.

        The best scenario for utilities is to install chargers to condominiums and community housing apartments that do not have garages and not easy or possible to install solar.

        • Yes yes, but let’s not forget places of employment. Right now a leaf doesn’t have the range to get me back home from work, but if I could charge it, that would be a different story. And PV tends to produce during working hours. Wherever there is a lot of PV installed, that would work really well.

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  • Found just recently that my town only pays 11c / kWh, but charges 16c. Took an incredible amount of digging and repeated calls just to get someone to answer the phone at these public utilities. And then even more to find someone who knew the policy. What a racket.

    • They pay someone 11c and charge you 16c. They do nothing but collect your dollars and use them to pay their suppliers? They’re just power brokers?

      Who pays for the grid? Is that part of the 11c?

      • In MA, the net metering rules apply differently to public vs. private utilities. Private utilities must give you “full value” for the electricity you generate.

        However, in my town, I have a town-owned utility. My town utility pays customers the full “energy charge”, but charges customers the “energy charge” + “distribution charge”. My distribution charge is ~5c. So, I’m required to have two meters, not one meter that also spins backwards.

        Other town-run utilities in MA are even worse. Norwood pays 7.5c but charges 14c.

        As a result, they have ONE customer in a town of 30,000 with solar panels.

        My town of 30,000 has SEVEN customers with solar panels.

        This is all in the great, progressive, liberal state of Massachusetts.

        • You lost me.

          The utility charges 5c for distribution costs? That sounds about right.

          Why should they broker and distribute the electricity you produce for free?

          • Yes, I’m charged 5c for distribution, that is not recouped by the homeowner.

            In other towns, net metering uses ONE meter that spins both forward and backward. If you generate 600kWh and also use 600kWh, then your meter registers no change, there’s no net electricity used, and your bill is essentially zero. Distribution costs are included because there’s only one meter, which spins both forward and backward. The homeowner solar producer is credited the full value for their electricity including any distribution and other charges.

            How does it work in CA? Or in your state?

          • Why should the utility pay you 16c for electricity you sell it and it sells on to someone else for 16c?

            That’s like you picking a bushel of apples off your tree, taking them down to the grocery, and expecting the grocery to pay you what they sell them for.

          • Bob, this is like an Abbott & Costello sketch. )

            That’s the way net metering works in states that want to promote solar —

            One meter. It spins forward and backward. If the meter doesn’t move any during the month (net plus and net minus cancel each other), then there’s no charge to the homeowner.

          • It’s only like an Abbott & Costello sketch if you turn it into one.

            Let me ask you as simply as I can.

            Do you think it is fair to require the utility to give you one kWh of electricity for each kWh of electricity you send them?

          • I have no problem with the fairness of that arrangement. Utilities are regulated monopolies, after all. I have no option to shop around. There is no competition. Homeowner are hostage to their rates. Are those realities fair to the homeowner?

          • That’s an answer?

          • I have no problem with the “fairness” of that arrangement. I thought I said that clearly enough. )

            And, many states don’t either. You can read CA’s rules from the link I included. MA is the same, absent their exemption for town-run utilities. So those legislatures have no issues with “fairness”.

          • Let me try again. Please answer “yes” or “no”.

            Do you think it is fair to require the utility to give you one kWh of electricity for each kWh of electricity you send them?

          • Yes. That’s the third time. )

            I’m sending that kWh to the rest of the neighborhood, which is one less kWh they would potentially need to deliver to others, saving them their “distribution costs” on that kWh they didn’t need to distribute because of my generation. There’s the math.

            It’s not just me stating this. States agree as well.

            And, as I stated, there’s nothing inherently fair about their existence and business model in the first place. They’re a guaranteed monopoly, operating without competition. So “fairness” is in the eye of the beholder.

          • No, you are not saving the utility one cent in distribution costs. They have to build and maintain the grid that takes electricity from your to another house.

            Do you understand why we have only one grid? Do you understand that having two parallel grids would make distribution costs twice as expensive? Does that give you a clue as to why we operate grids as regulated monopolies?

          • Maintaining the grid is part of the costs of their guaranteed profit. So, let’s not play the “do you understand” game.

            What’s your real interest in the topic? Do you work for a power company?

          • How about rather than attack my integrity you put on your thinking cap.

            Maintaining the grid is part of the utility’s costs. The utility can’t “pay” 16 cents per kWh and sell that kWh on for 16 cents and recover costs. Can you grasp that?

          • I think it’s perfectly reasonable for a utility to take the solar power at the wholesale rate of electricity plus the transmission costs, keeping for themselves the distribution cost portion and the retail margin.

          • Plus the transmission costs?

          • Yeah, why not, they don’t need to be paid, so the guy who makes that not need to happen should reap the benefit.

            And it’s easy enough to break down the retail cost of power to those four components without getting any distortion, because that’s what the go is for all your other power generation sources.

          • Perhaps. But that’s getting pretty deep into the weeds. Transmission costs are generally folded into wholesale cost.

          • Yep, but it gives a reproducible formula that changes only as the market changes, not as the political clout of the utility changes.

          • I suspect with any significant solar penetration utilities would be paying little to no transmission costs during sunny hours. Transmission costs are more likely during times that the utility will have to reach out to distant wind farms or hydro facilities.

          • Asking if you work for a utility isn’t an attack on your integrity.

            There’s nothing inherently fair about a guaranteed monopoly with a guaranteed profit.

          • But you want somebody else to do something for you and you want to not pay them for that. You want a guaranteed something for nothing.

          • I took your question as an attack on my integrity. And I still do.

            Now, you object to the way our grids are run. How do you suggest we run them?

            Should we take away the regulations and let the utilities do as they please? Should we, at times, require the utilities to incur losses and perhaps go out of business? What’s your solution?

          • Bob, it’s almost 11:30 for you, and almost 2:30AM here. You’re clearly interested in the topic, and my goal isn’t to antagonize random people on the Internet. I’d much rather leave things better than I found them, or try to help people with information when possible. So, I’ll thank you for the spirited discussion. Have a good night.

          • After a night of sleep I hope you will give some thought to whether utilities ought to be able to earn a reasonable profit.

          • It’s a lot more complicated than that.

            The key is that solar production typically occurs at peak demand times.

            Rooftop solar owners get metering credits worth their average kWh cost. However the kWhs they push onto the grid during peak times are typically worth 2 or three times that.

            In addition, transmission capacity in most regions is maxed out and local distribution from rooftop solar saves all ratepayers from the capital costs of building new transmission infrastructure that’s only needed for a small percentage of the time during peak demand.

          • Daytime solar will not remain “2 or three times” more valuable. It takes only a modest amount of solar to destroy the high wholesale price of electricity when the Sun is shining.

            We’ve seen that happen already in Germany. Take a look at the graph below. The top graph is before Germany had much end-user solar on their grid. Wholesale prices were high during the middle of the day so any solar fed in could be sold on at a good price.

            Add not that much solar and look at what happens in the middle of a day when the Sun shines. The bottom drops out of the wholesale price. The price of electricity drops as low as at late night/low peak hours.

            Now if net metering was in place the utility would have to take in low value electricity in the middle of the day and replace it with more expensive electricity during the remaining morning and evening peaks.

            Net metering works for both end-user/supplier and utility when end-user supply is low. But it breaks down as more solar is added to rooftops.

            As for transmission being maxed out, I think you’ll find that most of the ‘max out’ is at night when the onshore wind is up and demand is down.

          • California’s SCE charges 10 cents for production plus 5 cents delivery for each kWh. So net metering producers should get 10 cents per kWh produced.

          • You are commingling transmission and distribution costs.

            Transmission is the ‘shipment’ of electricity from a remote generator (wind farm, solar farm, nuclear reactor, coal plant) to the local grid. Southern California, for example, purchases power from Utah, New Mexico, Mexico and Oregon. This involves the use of large transmission lines, towers, etc. The cost of moving that electricity to SoCal is a transmission cost.

            Once electricity is within the grid service area it has to be moved from source to individual users. Those are the wires running around your neighborhood. That’s distribution.

          • Utilities must broker and distribute this electricity because they’re regulated monopolies mandated to procure and distribute power at the lowest cost. That’s the law they operate under.

            When a neighbor of a rooftop solar array needs kWhs on a hot sunny afternoon, the utility has two choices. They can procure the power from an independent power producer and pay the real-time market price, and also pay for transmission line utilization, or they can procure the power from a nearby rooftop solar array owner.

            Since excess solar production happens during peak demand times, the spot price per kWh that the utility will have to pay to a generator will be two to three times the average kWh price that they’d have to credit to the solar array owner.

            In this regard, the rooftop solar array owner is offering non-solar ratepayers these kWhs at a deep discount compared to real-time market prices. This arrangement is highly beneficial to non-solar ratepayers and lowers costs for everyone, not just solar array owners.

            The only loser in this scenario is the utility. This has caused them to turn to misinformation campaigns designed to trick non-solar ratepayers into opposing net metering, despite the fact that it actually reduces their electricity costs too.

          • Bob,

            The idea that utilities have to be monopolies in order to run the grid is deeply flawed. They said the same thing of the telecom industry, guess what, we are fine when competition is introduced. Airlines? we’re fine. Lets look at the long line of other critical infrastructure industries, fine. Utilities wouldn’t be such an issue if they represented the people they serve, but they are usually investor owned. Meaning they have an incentive to fleece their captive customers as much as possible. If you don’t work for the utility you have no rational reason to support them as they currently exist.

          • The utility – the company that builds, operates and maintains the grid pretty much has to be a monopoly. Hard to imagine a system with multiple grids, multiple sets of wires running up and down our streets.

            If you’re suggesting that we could allow other businesses to sell electricity on the grid, yes, that would work. We’re already doing so in many places.

          • Only the distribution piece has to be a monopoly. They should not be allowed to own generation, because it is a conflict of interest. The target should be TOU pricing. Computers are cheap. Would need to sort out how to communicate the price of electricity to the homeowners gadgets, but that is not insurmountable. People with solar pannels should get the full value at the time of production. And fossil plants should have to pay for everything coming out of the chimney, CO2, mercury, particulates, acid rain causing gasses. All of it.

          • I pretty much agree. Make the distribution part a separate company and make it well-regulated.

            If you mean people with solar panels should get wholesale price of electricity during the feed-in time block, I agree.

            Fossil fuel plants paying their external costs, I highly agree. But I think there’s about zero chance of that happening. We’ll get carbon prices in some markets but I doubt we’d get enough to cover all external costs.

          • Wholesale + transmission, unless it has to take a ride on a transmission link to it’s destination, so if 5% of a towns solar juice gets exported, then wholesale + (transmission x .95) for example. Not including distribution.

  • The greedy electric utilities will lose billions to solar, but I could care less. God didn’t ordain them to keep raising rates, so they could build nuclear power stations, and dirty coal plants, and stick us with the bill. It’s time to put as many solar power systems as possible on as many roofs as possible to undermine, and put these greedy electric utilities out of business.

  • Do US utilities in fact lobby in Washington against the extension of the solar tax credit? Logically they should be in favour of the utility version, and neutral on the residential. I assume they support the wind PTC, which lowers the price of purchased wholesale electricity. The fights over net metering, where the interest of the utilities is clearly to end it, are at state level. I suggest it’s a mistake to think of a monolithic “anti-solar” movement.

  • An Energy Star Version 3 home save about 700 kWh per month per their website, as much electricity as a 4.7 kW solar system. Should a utility be able to recover that revenue as well? When I called ATT to cancel my land line because everyone in my family has a T-Mobile cell phone, they didn’t come calling for money because their infrastructure was sitting out in my yard. However, I’m sure they would have liked to. I drive a Prius, should I have to pay more per gallon at a service station because I get 50 mpg and fill up with $21 and not $40+? Besides, its all about sustainability, there will be 2 billion more humans by 2050.

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