Net Metering Progress In Japan, California, & Hawaii — Net Metering History & Logic Part 2

by Roberto Verzola

[Roberto Verzola is the author of Crossing Over: The Energy Transition to Renewable Electricity, a book published by the Friedrich Ebert Stiftung which was launched on March 23, 2015. The online version of the book as well as the article this post comes from can be downloaded freely. See Part 1 here. The author may be contacted at rverzola@gn.apc.org. All references are indicated in the e-book.]

By the 1990s the net metering idea had crossed the Pacific. In June 1990, Japan’s Ministry of International Trade and Industry (MITI) announced highly simplified regulations for residential PVs that wanted a grid connection. The Japanese Federation of Electric Power Companies volunteered to introduce a net metering program based on parity pricing by 1992. The first to take advantage of the new program was a Sanyo engineer and solar researcher, Yukinori Kuwano, who connected a 2-kW PV system to the grid in July 1992. Net metering would eventually be tried in Canada, Europe, Australia, Brazil (2006), Mexico (2007), Sri Lanka (2009), Uruguay (2010), Lebanon (2011), Argentina (2012), India (nine states as of 2014), Chile (2014), Pakistan (2015), and several other countries. Germany would pioneer another successful approach, the feed-in-tariff.

At this point though, outside of pioneering Minnesota, net metering in the U.S. was still a matter of regulatory process or mostly a do-it-yourself effort. It took root or not depending on the whims of local utilities or the openness of regulatory commissions to innovative ideas. However, things were about to change. Let us hear this time Johnstone’s story about legal researcher Thomas Starrs:

“As a student researching the causes of the ‘wind-rush,’ the sudden surge of investment in wind energy in California during the early eighties, Tom Starrs had what he modestly described as ‘a minor epiphany.’ Namely, that the main driver for investment in renewable energies had virtually nothing to do with any recent advances in the technology. Rather, it was energy policy that played the most important role. Investment in wind had been rooted in the tax breaks that state and federal law had made available to developers . . . .

“Armed with this insight, in December 1992 Starrs invited himself to a meeting of the Photovoltaics for Utilities Group (PV4U) in Stuart, [Florida]. . . . Starrs stood up and introduced himself. He explained that he was a graduate student at the University of California at Berkeley looking for a meaty topic into which to sink his teeth. ‘I sat down, and this guy literally in front of me, who I didn’t know, had never seen before, leaned back in his chair, and sort of whispered out of the corner of his mouth—“net metering!”

“Starrs had no idea what the stranger meant. Nor that this was Steven Strong, the architect who . . . had the previous decade designed and built the world’s first grid-connected solar electric house and who by now probably had more experience with PV-powered houses than anyone else in the US. When the session was over Starrs got together with Strong. The latter explained what he meant by the term ‘net metering.’ The basic idea was simplicity itself. It exploits the fact that the rotating aluminum disk on the garden-variety electric meter used to track the number of kilowatts a household consumes in a given period—usually a month—has the ability to spin backward as well as forward. This ability meant that net metering of solar electricity could be introduced for residential customers with no change to the existing equipment.

“Net metering is essentially an accounting mechanism based on parity pricing: any excess electricity generated by photovoltaics (or other form of generation) flows out to the grid. It is automatically credited to the customer at the same—that is, retail—rate as electricity flowing in from the grid. The meter spins backward, effectively erasing a portion of the total charged. ‘Net’ simply means the final figure read out at the end of the billing period. Starrs was entranced by the concept. It seemed to him that net metering was the obvious way to simplify the often-byzantine process of connecting small systems to the grid. Also, to provide an answer to a complex question: What is the value of electricity generated and delivered within the distribution system? As Starrs knew from his work on the policy arena, it pays to keep things simple.

“Starrs wrote the first-ever paper on net metering. In June 1994, he presented the concept at an American Solar Energy Society conference in San Jose, California. The paper caused quite a stir. ‘ . . . Afterward I was just barraged with questions and business cards. That’s when it hit me that, for whatever reason, this issue really resonated with people.’ ”

Six months later, at the 1994 First World Conference on Photovoltaic Energy Conversion in Hawaii of the Institute of Electrical and Electronics Engineers (IEEE), with some 900 attendees, a working group was formed to propose net metering as a policy option for government. Their target: the California state legislature. When the group considered who should draft the bill, “the heads of the other six or seven people around the table all immediately swiveled to look at me,” Starrs relates. So, with two other colleagues, he ended up writing the draft legislation that will require utilities to accept the scheme. To make the bill more palatable, Starrs’ draft described net metering not as a sale of electricity from the solar rooftop owner to the utility but an exchange of energy. His drafting team also formulated “a set of rules that would simplify the process of interconnecting these systems in a way that more or less eliminated the utilities’ project-specific discretion over the interconnection.” As Johnstone described it:

“The proposal was that, so long as the PV system’s inverter—the device that converts continuous direct current output by the panels to alternating current in sync with the grid —met certain technical specifications, then the utility would be obliged to accept that inverter as the interface. The power company would not retain the ability to impose any additional requirements regarding interconnection. There was legal precedent for this argument. For decades AT&T had battled in the courts to maintain its monopoly on what equipment customers could plug into their wall socket. The phone company argued that interconnection of telephones made by anybody other than its manufacturing arm, Western Electric, would compromise the stability and reliability of its network. Starrs had studied the epic anti-trust telecoms lawsuit in grad school. He knew how eventually the regulator had ruled that any manufacturer willing to meet certain standard specifications could make and sell devices to the consumer.”

To make a long story short, Starrs’ draft passed the California legislature unanimously in 1995, and California became the second state to do so after Minnesota. In the lobbying process, however, the local utilities still managed to limit the law’s impact. Only installations of 10 kW or lower could participate in the scheme, and an overall system cap was set at 0.1% of the local utilities’ peak demand.

Net metering researcher Yih-huei Wan of the U.S. National Renewable Energy Laboratory (NREL) identified the following reasons why net metering programs were subsequently adopted by more state legislatures and public utility commissions:

“The main objective for states implementing net metering programs is to encourage private investment in renewable energy resources. Other goals include stimulating local economic growth, diversifying energy resources, and improving the environment. The appeal of net metering arises from its simplicity: the use of a single, existing electric meter for customers with small generating facilities. After the program is implemented, no regulatory interaction or supervision is needed. As a policy option, it makes renewable energy technologies more economically attractive without requiring public funding. Net metering also addresses a perceived equity issue of utilities gaining an unfair advantage over customers by paying customers only avoided cost but charging them retail price of electricity.”

Supposedly following California’s lead, Hawaii also enacted a net metering statute in June 1996, but with a different outcome. NREL researcher Yih-huei Wan tells the sad story:

“Hawaii’s net energy metering law mandates the use of two meters (one to record total consumption and the other to record total generation). Customer generators are billed for the electricity they use at the utility retail rate, and the utility credits the customer generators for the electricity they generate at a rate determined by the PUC based on the utility’s incremental cost of energy. This requirement prevents the customers from using generation to offset their own consumption, thus denying customers the most important benefit of net metering. . . . Therefore, it is more appropriate to classify the Hawaii net metering law as a simultaneous purchase and sale agreement for small customer-owned generators rather than a net metering law.”

About the Author: Roberto Verzola has a degree in electrical engineering and has worked in the information technology sector since the late 1980s. But he has also been a social activist for most of his adult life, including three years as a political prisoner in the 1970s. Earlier this year, his book “Crossing Over: The Energy Transition to Renewable Electricity” was published by the Philippine office of the Friedrich Ebert Stiftung of Germany. Verzola is president of the newly-created Center for Renewable Electricity Strategies, a non-profit organization focused on helping local governments in the Philippines set up showcase communities which source 100% of their electricity from renewable sources. in a way that is economically viable both for investors and consumers. He may be reached at rverzola@gn.apc.org.