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Published on January 31st, 2016 | by Michael Barnard


The Net Metering Disconnect

January 31st, 2016 by  

Artist rendering of the solar array planned for the Mandalay Bay Resort Convention Center. (PRNewsFoto/MGM Resorts International)Net metering has become controversial in recent years and a rate hike for home solar owners in Nevada in December 2015 is the front lines of the brewing war. The Public Utilities Commission has created a new rate class for home solar, and it’s putting the distributed solar industry in that state at risk. And it’s not the only state where this is happening. California is seeing serious pressure from utilities regarding net metering and their Public Utilities Commission barely kept net metering intact.

Obviously, there’s an issue in the mix, and obviously, utilities commissions are challenged to deal with it. So what is it, and what should be done about it?

What is Net Metering?

net-metering-diagramAs it is mostly implemented, it’s straightforward. A homeowner puts solar panels on their roof. They generate electricity. When the homeowner consumes the electricity generated by the solar panels, they get it for “free.” When the homeowner doesn’t consume the electricity, it goes into the grid for use by others on the grid at their expense. When the homeowner needs more electricity than their solar panels produce, they draw it from the grid.

There are two numbers that become important for the net part: the number of kWhs drawn from the grid and the number of kWhs sent to the grid. Subtract the second from the first, typically make sure it isn’t below zero or some other cap, and the homeowner only pays for the net amount of electricity that they consumed from the grid. There is no model where homeowners are paid by the utility for excess electricity that they produce under net metering plans that I’ve seen.

Net metering strongly incentivizes solar home deployment because it’s effectively competing with retail electricity prices, and usually peak or near-peak time-of-use billing prices. The capital cost of the solar panels and initial installation is an easy business case at retail electricity prices, hence the reason why SolarCity, Sungevity, and several others offer $0 down leases.

Net metering is good for society because it enlists consumers and their money in the generation of carbon- and pollution-neutral electricity. This helps with climate change and clean air in urban areas, both of which have costs which are borne by other segments of industry and society. This is the same argument for any form of renewable generation, in that it avoids the vast majority of negative externalities associated with most other forms of electrical generation.

Why is This a Problem for Utilities?

It isn’t at very small penetrations. Globally, the evidence is that, when rooftop solar is below 1.5% penetrations, utilities do okay. As rooftop solar is dominantly generating at peak times, the generation means that consumers are paying for peak generation and utilities don’t have to.

However, when penetrations start reaching higher levels, with numbers of 1.5% to 3% from what I’ve seen from Denmark and the like, then utilities start suffering fiscally. Their most profitable customers start not paying for electricity. Consumers always have the highest electricity costs, with industry getting significant price breaks for a variety of reasons, some of which benefit the utility, some of which are politically motivated to incent businesses to set up in jurisdictions.

This is compounding a couple of existing structural financial problems at utilities in the developed world:

  • 192565_5_Demand is flat. Efficiencies, which utilities are often legislated to fund and promote, have been effective in reducing demand per capita or business, all else being equal. Shift of heavy industry to jurisdictions with lower labour costs and the shift of developed nations to knowledge work and service economies has meant that electrical demand is relatively flat while GDP and population increase.
  • Stranded assets. Many utilities have coal generation assets which are becoming stranded. As an example of the systemic problem in coal generation, the USA’s second largest coal provider just declared bankruptcy. Many coal thermal plants are still paying off their capital costs, but it’s clear that regulations and policies related to climate change and air pollution are going to require that they be sunset before their expected end-of-life date. Financial institutions are taking this into account when utilities ask for funding of various types and putting appropriate interest rates on loans if they give them at all.
  • Transformation demand. States, the federal government, and consumers are demanding that utilities provide increasing amounts of carbon- and pollution-neutral electricity. This means building wind- and solar-powered generation or buying clean energy from providers, which has often been at a premium to mostly amortized coal. This economic balance is changing, but utility-scale wind and solar plants are still high capital cost items requiring funding. See the stranded assets point for why this might be a problem for utilities.
  • Yakima from Oct 2011 IBEW 125 issueGrid maintenance. This is pointed to as the proximate cause most of the time in most superficial discussions of net metering. Basically, utilities still have to pay for the wires, transformers, poles, line workers, trucks, distribution management software, and the like. This has a cost which is hidden in consumer rates.
  • Regulated rates. Utilities are regulated monopolies for the most part. They are allowed to charge specific rate structures to different classes of consumers based upon utilities asking utility governance boards for permission to do so. They cannot charge what the market will bear, but what external stakeholders allow them to charge. They can’t adapt quickly. If, for example, the price of methane jumped 300% in January, they can’t pass that cost on to consumers directly, but must do a bunch of fiscal modelling around possible costs of fuel and wholesale electricity prices, project that forward several years, make a bunch of assumptions, figure out what they need to charge in order to cover the cost of business and transformation, and then ask the utility board for permission to charge that. And utility boards and politicians get beaten up when the price of electricity rises, even if it’s low compared to neighbouring jurisdictions.

So, in an environment where utilities are fiscally challenged compared to where they were a decade ago, net metering mandated by states is putting increased fiscal strain on them by taking away one of their most profitable revenue streams.

You can see why utilities would want to eliminate net metering, cap it, switch it to wholesale instead of retail rates, or charge a distribution fee to consumers, essentially unbundling the grid costs from the electricity costs. All of those approaches that have been suggested by utilities in various jurisdictions.

There’s another level of discussion on this, however, and that’s the political football of climate change and renewables, a place where utilities have not been neutral parties.

Net metering for solar is like renewable generation of other forms. It’s a strong net benefit for multiple sectors, but it’s a cost for utilities. This runs into two types of headwinds, especially in the USA: climate change denialism and libertarianism. Many utilities are major fossil fuel owners and climate change deniers or downplayers. Many coal generation types are libertarians, believers that if the market doesn’t price negative externalities, it’s not their problem. The Koch Brothers are big into coal for example, and have been funding both climate change denialism and libertarianism promotion for a couple of decades.

What Does This All Mean?

It means that utilities benefit by taking net metering from something based on retail prices of electricity and finding ways to water down that value proposition. But society doesn’t. Overall, society loses, because more coal and methane get burned to generate electricity instead of solar power generating that electricity. That comes with climate change impacts and pollution in populated areas that impacts lots of people’s lungs, especially children and the aged, but also a lot of productive workers who take more sick days.

Utilities are in a tough place and regulators aren’t necessarily helping them. Utility boards don’t have any mechanism to assist utilities with their fiscal problems except letting them raise rates, which they don’t like to do because they get beaten up for it.

States and federal agencies have to step into this to a certain extent. The transformation to clean energy is necessary for overall societal health and prosperity. The costs of transformation of electricity generation have to be spread around, just as the benefits are spread around.

Utilities only have a few levers to pull, and net metering is one of them. Trying to get net metering watered down makes sense in their worldview. But it shouldn’t be allowed by society at larger levels. We need bigger solutions to help utilities with their structural problems.

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About the Author

Mike works with startups, existing businesses and investors to identify opportunities for significant bottom line growth in the transforming low-carbon economy. He regularly publishes analyses of low-carbon technology and policy in sites including Newsweek, Slate, Forbes, Huffington Post, Quartz, CleanTechnica and RenewEconomy, with some of his work included in textbooks. Third-party articles on his analyses and interviews have been published in dozens of news sites globally and have reached #1 on Reddit Science. Much of his work originates on Quora.com, where Mike has been a Top Writer annually since 2012. He’s available for consultation, speaking engagements and Board positions.

  • ROBwithaB

    My plan for how this SHOULD work:

    1. The reticulation infrastructure in any specific area is a public asset.
    2. “Utility” companies compete in an auction once every 3 years or so for the privilege of operating the grid. Lowest bid wins. The contract is subject to any number of performance-based metrics, and minimum maintenance standards.
    3. A public “utility commission” is tasked with constantly monitoring data on performance, and conducts random inspections of infrastructure. Any member of the public can report faults or complaints directly to an anonymous hotline

    4. Any publicly-owned generation capacity is privatised.
    5. Anyone can register to be a producer of electricity, in return for a nominal annual fee, as well as a surcharge based on capacity. This “tax” funds the “utility commission” and covers the cost of inspections, permitting etc. A “producer” might have production capacity, or storage capacity, or both.
    6. A “producer” does not necessarily have to own any production capacity, but might agglomerate numerous production sources, including individual household systems. A household with solar power might well find it easier to contract with such a “bulk generator” company. It can be anticipated that a number of such ‘middlemen” might exist in any particular market.

    7. Producers can choose whether to supply electricity at a flat rate (via a “dumb” meter), or at a flexible rate that fluctuates with time, in perhaps 15 minute increments (via a “smart” meter).

    8. Consumers have the same option.
    9. Anyone can sell electricity to anyone else. Either on a fixed monthly basis or fluctuating spot price basis. And similarly anyone can buy electricity from anyone. In practice, those who opt for flexible pricing would probably elect to contract with a re-seller.

    10. Those who opt in to the spot price market would be strongly incented to install a smart hybrid inverter or some other “black box” that can be pre-programmed to respond to certain external price points, and other “internal” inputs.
    e.g. always use solar power from my roof first,
    if output from the roof exceeds other household draw, turn on the element on the hot water tank

    if the water tank hits preselected temperature, use solar to charge my batteries
    at prices below 1c, top up my batteries with grid power

    at prices below 2c, top up my hot water with grid power if solar not available

    at prices above 5c always turn off the hot water element

    at prices above 10c, never charge the battery

    at prices above 20c, turn off all non-critical circuits

    at prices above $1, if no solar, use battery power instead of grid power to run critical circuits

    at prices above $5, supply any solar back to grid

    at prices above $10, draw power from batteries to supply the grid, up to 40% depth of discharge
    at prices above $100, shut of ALL circuits in my house (I’ll just go to bed in the dark if I can make this sort of money) and run batteries down to 90% DOD to feed the grid.
    and so on…

    11. Even relatively low penetration of such hyper-responsive systems would allow for substantial smoothing of peaks and troughs on BOTH supply and demand sides.

    12. Early adopters would be able to exploit the highest price differentials, thereby compensating for higher initial prices on batteries etc.
    13. As battery costs come down, more are installed, and price differentials are reduced until the new equilibrium point is reached.

    14. All prices are public, traded electronically 24/7 on a public platform, similar to the Nasdaq or whatever.

    So that’s the basic idea. I’d welcome any input from those with first-hand knowledge of flexible grids.
    Owners of solar are happy, because they get the best possible (fair market) price for their ouptut, and can prioritise their consumption.
    The public at large is happy, because costs are lower for everyone.
    Greenpeace (and your asthmatic kids) are happy because lots of FF capacity is suddenly uneconomical to run.
    Libertarians are happy because this is the ultimate free market system.
    Tea party folk are happy because there’s less government intervention, and there’s no spying on us via “smart home” devices that allow other people to turn stuff on and off in our houses.
    Taxpayers are happy because the costs of maintaining the grid come down, as local generation and consumption are incentivised.

    Coal miners might not be too happy, but it was never a fluffy rainbow kitten job to start with, and in any case they should have seen it coming. Perhaps the government can set aside some funds for re-training miners to install solar?
    Incumbent “generating utilites” are likely to take a knock, because “baseload” is suddenly redundant and there’s no way to hide it. But the good ones will adapt to the new, leaner system and find ways to profit from it.

  • Dragon

    The fact we get paid for excess generation in California is actually a problem in that utilities won’t let customers install a system larger than 120% of their historic usage. I want to install a system large enough to replace all fossil fuel use, but my best estimate is that system will be something like 200% of historic usage. So I either have to replace fossil first and pay extremely high electricity prices for a year to prove how much I’ll be using before I go solar… or I have to install a half size system, then replace fossil, pay less high electricity prices (since I won’t be going into the high price tiers as much), increase the system size… all of which costs extra installation and permitting and I may need to replace an inverter that was sized for the smaller system… Either way it’s a mess.

    If I install batteries and don’t do net metering, it looks like it will cost something like $12k for four powerwalls plus installation to keep things going outside the ~5 hours of solar generation. I might eliminate one battery by timing electric use for when the sun shines, but heating is the biggest draw and the biggest need for heat is when the sun isn’t shining. I’m also looking at a heat pump to reduce electric heating costs but I really can’t figure out how to estimate how much energy it will use. All the estimation methods I’ve found are so rough that I don’t think they’re useful.

    • GCO

      My Californian municipal utility, despite encouraging solar, didn’t want me to install more than 100% of my historical usage.
      I reckon that this is mostly for administrative and/or fiscal reasons, as a whole different set of rules apply to generating facilities.

      I showed them I just got an EV, with the math explaining how much power it’d use, and they let me install the size I needed. I since added even more, in anticipation for a heat pump.

      Re estimating heat pump electrical usage: it’ll be whatever you currently use, divided by the heat pump’s coefficient of performance (COP); a COP of 3, for example, means you’ll use 3 times less energy for heating.

      Some manufacturers give you the COP directly, for various outside temperatures. Others give the HSPF, which is a “seasonal average” of the output in BTU (yuk) for each W⋅h of input; multiply by about 0.3 to get the COP.

    • ROBwithaB

      Of course, there are various ways of storing heat. Might well be cheaper than storing electricity.

  • Matt

    A real carbon fee/dividend system would help here because then the benefits of solar would more closely match with the utility model.

  • eveee

    NEM doesn’t solve the problem completely. There needs to be an alignment of motivations at all levels through markets. It should be, if the utility saves, you save. If they spend more, you spend more. Peak demand creates needs for generation, transmission etc. Thats costly. Behaviors that reduce peak demand should be rewarded at all levels and costs and benefits shared. Ultimately wholesale and retail have to link. And wholesale has to link to actual power system costs. ( including externalities)

  • one-sided arguements

    I think that this is a nice article and tries to take a reasonable approach to the net metering customer. The question I have is from a reliability standpoint. With all renewables, they have intermittencey issues. From the utility standpoint, their system is mandated to be sized to be able to handle the entire load that all of their customers are capable of putting onto their system. This means that transmission and distribution systems must still be upgraded even though their system load is decreasing. Unless people are going to start going truly “off-the-grid” for some their operational load, the utilities will still have to upgrade their systems.

    • halslater

      Intermittency is another utility company mis-direct and there are many articles on the web now detailing studies that show that the grid will remain stable without batteries at 30-40% renewable and batteries will be far cheaper than generators long before we get to that level.

      Going off the grid with solar only requires a 3 day battery backup, reducing grid use to practically nil only requires a half-day battery. Off-grid would result in large amounts of battery going to waste from infrequent use, it would be better if utilities would stop fighting solar and figure out how to use it more cooperatively.

    • Bob_Wallace

      With large amounts of fossil fuel generation on most grids intermittency is not an issue. There will be no need to upgrade grids for a long, long time. Just turn off a coal or gas plant, save some fuel, and lower CO2 emissions.

    • “Last Friday Germany’s grid regulator released the 2013 data for grid reliability, and the figures have renewable energy advocates crowing. The latest numbers (released in German) reveal no sign of growing instability despite record levels of renewable energy on the grid — 28.5 percent of the power supplied in the first half of 2014. In fact, Germany’s grid is one of the world’s most reliable.

      According to the Bundesnetzagentur, unplanned outages left the average German consumer without electricity for 15.32 minutes in 2013, down from 15.91 minutes in 2012 and 21.53 minutes in 2006. The performance, using the power industry’s System Average Interruption Duration Index (SAIDI), affirms Germany’s place in the top five for grid reliability for European countries.

      German grid reliability, meanwhile, far outstrips the best SAIDI results delivered by U.S. and Canadian utilities. The top quartile of SAIDI results captured by last year’s North American reliability benchmarking exercise by the IEEE Power & Energy Society, for example, had consumers without power for an average of 93 minutes — six times longer than outages experienced by the average German consumer.”

      • USNVO

        Germany is the size of Montana and primarily urban. So you are comparing apples to oranges when you look at the US or Canada with significantly greater distances involved. The typical German consumer also pays a minimum three times the rate for electricity (for instance, when I lived in Hamburg we payed roughly $0.28/kWh depending on the exchange rate) of the typical American or Canadian consumer. But even then, the poster was not talking about reliability as he was about the need to upgrade the grid and the German grid is looking at a massive upgrade to support the shift of generation from the South, where the most load is and currently the greatest generation as well, to the North where the largest renewables (off-shore wind) is projected to be installed. So they are looking at raising rates even higher.

        • Bob_Wallace

          The retail price of electricity in Germany is now $0.31/kWh, less than 3x that of the US. But a direct comparison of prices is misleading.

          22% of the 31 cents goes to pay for renewable energy subsidies. And retail customers pay all the subsidies while industrial users are enjoying decreasing electricity costs and pay nothing. In the US we pay that out of general funds, not as part of our electricity price.

          16% of the 31 cents is a sales tax (VAT) which goes into the government coffers and has nothing to do with the cost of electricity.

          Take out those taxes and the cost of retail electricity drops to about 20 cents per kWh which is similar to what electricity averages in some US states.

          The accurate way to look at the cost of electricity is to look at the wholesale cost. Strip away all the taxes and fees. Take a look at the graph below. German electricity costs have been falling and continue to fall as Germany closes coal and nuclear plants and install wind and solar.

  • Mark Bailey

    There are available solutions for the maintenance issues, but the self generators may not like them. Most utilities have a rate for customers who generate all or part of their required electricity and use the utility for a back up. The rate reflects the cost of maintaining the connected capacity, including generation held in reserve, contracted for. If you need 20 kW to be available for back up, you contract for that amount. If your demand averages 60 kW and you have 80 kW of capacity, you only use the back up from the utility to meet peaks in demand or when some of your capacity if off line. There is a catch, demands placed on the utility in excess of the contracted limit are EXPENSIVE. But you do not pay for what you think you do not need. And the utility is paid for only what they are required to furnish.

    Very few customers of utilities can afford the luxury of going off the grid, disconnecting completely from the utility and relying solely on their own resources. For those who can’t, reserve capacity rates might be the answer.

  • halslater

    Your point about “Grid maintenance… as the proximate cause most of the time in most superficial discussions of net metering.” is a total canard perpetrated by the utilities for the following reasons:
    1) The wear on the grid caused by load is EXPONENTIAL to the load, solar users reduce that load and more than make up for any cost they create by using the grid.
    2) The excess power produced by the solar owner is sold to the nearest power user at FULL RETAIL with no fuel, generator or transmission costs to the utility. This is the most profitable thing they have so they were happy until it actually reduced demand.

    The problem lies in the fact that distributed generation (DG) in any form will result in a decrease in the size of the utility and there is no model in our economic system for a declining industry to succeed. People will have to be laid off (for workers they have no problem but executives will have to be cut too and that is unthinkable to them). Their assets are declining in value and while DG makes things better for the rest of us it is getting pretty ugly for them.

    The best solution is Municipal Utility Districts like LA and Sacramento and other cities have. That way, the interests of the society will not have to compete directly with the profit motive which is the primary source of the current stress on the system.

    • Bob_Wallace

      2) Yes, net metering is a great thing for the utility until there’s enough solar online to bring the price down below what it costs the utility to repay the bill with more expensive electricity.

      End-user solar does drop demand. But utilities can replace that demand by facilitating electric cars.

      Worst case, the utility downsizes. But the need for utility companies and grids will still be there for a long time to come.

  • Phil

    Australia has net metering and they used to pay the consumer up to 60 cents a kwh for contributions to the grid so many put massive solar arrays in and used very little themselves. Some even ran their own power on gensets as it was cheaper ! . Then the honeymoon ended and the contribution to the grid rates dropped to around 6-8 cents per kwh. But it did not slow the uptake . 25% of Australian homes have on grid solar panels. Because you get first bite of the solar power if you can delay the dishwasher on a timer to do it during the day it costs you nothing . Slow cookers for meals are popular again as are pool filters during the day. But at it’s peak people were doing this http://www.couriermail.com.au/news/queensland/gold-coast-retiree-graham-drew-sparks-neighbourhood-feud-by-plastering-63-solar-panels-on-his-property/story-fnihsrf2-1226680913995

    • dogphlap dogphlap

      I was one of those early adopters and I still get about twice retail per kWh for the excess I generate however it is not the gravy train you may be thinking. Early adopters paid early adopter prices for those panels. I did the sums (not hard, just arithmetic a nine year old would have no trouble with) and concluded I would probably never break even because my life time is finite (as is the the lifetime of the panels and inverter) but I did it because I thought it was the responsible thing to do (especially in Australia with its highly fossil fuel driven grid). Despite the winging that the we hear from the grid companies they do very well out of residential solar, particularly now the new adopters (even with the now much lower capital outlay they have to make owing to the falling prices that the early adopters help bring about) are being charged $0.27/kWh and paying just $0.06kWh for the electricity fed back. They have all that generating capacity they did not have to pay one cent for on peoples roofs they pay no rent for and making 350% on that electricity when they sell it to your neighbour. And they have the nerve to say we are free loading. It’s a sick joke. Oh and as to maintenance cost etc, there is a fixed charge on every bill to cover that, everyone gets to pay that.
      One other point not mentioned is the declining consumption of grid electricity is not purely due to residential solar, things have become more efficient particularly the use of compact florescent and LED lights along with the decline of power hungry plasma TVs and the rise of much more efficient LCD TVs.

      • Phil

        Yes i fully agree with your comments. I divested them all by going 100% off grid on a new build where the poles and wires stop 4 building blocks away.

        Thanks to early adopters such as yourself my panels were 50 cents a watt as i bought Trina 250w panels for $135 each at a “scratch n dent ” panel clearance This came about when the Government reduced the solar subsidies overnight.So this company cleared whatever they could to maintain a cashflow until they came up with a new plan.

        The meter readers still call in to my place and can’t understand why i dont have a meter (never had one from a new build on a vacant block) This pretty much sums up how ignorant the electrcity industry is.

  • Peter Egan

    Three key points from the article:
    — The costs of transformation of electricity generation have to be spread around, just as the benefits are spread around.
    — Utilities cannot charge what the market will bear, but what external stakeholders allow them to charge.
    — Unbundling the grid costs from the electricity costs is unavoidable.

    The third point is critical. The marginal cost of operating the grid is minimal. The electrical grid is a great means for energy trading. If all market participants, including retail customers, can trade electricity at low marginal cost, the overall cost of energy will fall, and its generation and distribution will become more efficient. The grid could be paid for on the basis of a 5 kW, 10 kW, 15 kW, 20 kW service which can be controlled by the size of the main fuse. People with low power needs, they live in an apartment or have home electricity storage, could opt for a lower rated supply, and pay a lower grid cost. This strategy will encourage more energy efficient buildings, onsite energy storage, solar panels so people need a lower supply. If every home garage has a 7.2 kW Level 2 charger for an electric car, it would probably need a 15 kW connection connection to the grid for energy supply and trading.

    • John Ihle

      One meter dedicated to energy supply and e.v. and one dedicated to load? That’s not net metering. Most homes would need a much larger service than 63 amps if you’re inferring one meter to net meter. Many net metered homes utilize two meters.
      The investment model mostly exists. It’s called a cooperative.

      • Peter Egan

        I meant there will eventually be a charge for the maximum load you can draw from, or send to, the net whether it is used or not. Then there will charges and revenue for the electricity received and sent as electricity is traded – perhaps different companies for each.

  • John Moore

    You are being too hard on Mike. There was a lot of good information, well organized, in his article. I found it helpful. Your opening statement that he doesn’t understand how net metering works is grossly unfair. He wrote an entire article about it, explaining how it works. It was just packed with useful information. You have a couple of relevant criticisms, but IMHO, too harsh overall.

  • vensonata

    Up to this time the motives for rooftop solar have been either economic or ecological. The economics are small potatoes. Without incentives it will decline. But if the price of using the grid as a battery (it is really a generator…in many cases a coal fired generator) becomes greater than using your own combination of batteries and generator, then you will see grid exodus. There will be two choices: a Tesla house or a Volt house. Lots of batteries, no generator, or moderate batteries and generator. Nothing special here these days, just getting used to stationary house models of the cars running all over the roads now.

  • RR

    As climate change is a national security issue: What might the President or Congress? How close is the Federal gov’t to net metering?

    • Bob_Wallace

      Net metering is an unworkable plan. We need a system that treats both supplier and buyer as fairly as possible.

      Net metering required by the government would be a case of forcing utilities to subsidized end-user solar. The only way that would happen is for the government to also allow utilities to pass the costs on to non-solar customers.

      • dogphlap dogphlap

        No. As it stands now the customer pays for the panels and inverter with maybe some sweetner from the government but that is now so small it might just as well go away.
        The grid buys electricity from the public for 6c/kWh and sells it for 27ckWh so they make a huge profit and had to pay none of the capital cost of the generating capacity (panels, inverter and installation) and they still get to charge a fat flat fee for grid upkeep and now they have been granted the right to levy a quarterly charge for the cost of the bi-directional meter. The utilities don’t subsidise anything, they exploit it and still complain.

        • Bob_Wallace

          What you are describing is not net metering.

          What I said was needed was “a system that treats both supplier and buyer as fairly as possible”.

          What’s a fair price? I don’t know. What is the grid paying other suppliers for electricity during the sunny hours? Paying the going rate adjusted for any transmission cost/savings seems reasonable to me.

          How would you set a fair price?

          • dogphlap dogphlap

            My understanding is net metering is a contraction of ‘zero net metering’ which it is if you are just counting kWh, the trouble is the difference in price between those kW sold to the home owner and sold to the utility. From the stand point of the public good it needs to also be net zero cost. Peoples roofs are an amazing new asset now that PV is so possible, it should be utilised to the maximum to help clean the air not, as appears to be the case in Nevada used as a free prop for the grid utility company.

            I would set a fair price thus:

            (i) Electricity sold should be at the one price no matter if it is the home owner or the utility doing the selling (the price could vary throughout the day in accordance with demand but there should always be parity).
            (ii) A fixed charge to cover costs incurred by the utility for maintenance, provisioning and payroll etc but not power power generation, that would be covered by item (i) will have to be met by the home owners irrespective of whether they have PV or not.

            In addition there could be a limit imposed on the maximum kW generating capacity for which rule (i) would apply. Where I live that limit is 5kW which seems about right but in the US which seems to use much more than here a higher figure might make more sense (10kW ?).

            It is important to use roof PV because it helps cut down on air pollution, mercury contamination even water pollution and radioactive contamination (all from coal burning) and water table corruption from fracking for natural gas. It will enable the existing plant to meet demand into the near future without major new expense since a large chunk of generating capacity will have moved to the customer end of the network, generating capacity the customer paid for, not the utility.

          • Bob_Wallace

            (i) I’m not sure what you’re saying here. Are you saying that utilities should pay end-users retail prices for the electricity they send to the grid. Or that end-users should be able to sell to other end-users at retail prices with the utilities furnishing the grid at no cost? Or something else.

            (ii) A fixed fee for grid connection. All pay the same regardless of the amount of electricity they purchase from the grid. Correct?

            “It is important to use roof PV because….” One can make the same argument for utility solar (solar farms). Are you suggesting that utilities should be required to pay more for the electricity they receive from roof tops than what they would pay a solar farm for electricity?

  • sageflower

    PLEASE allow for a printer friendly version of your articles that does NOT include all the ads and color cartridge use – Please!???

    • dogphlap dogphlap

      You do know you can just highlight all or some of an article then copy and paste into a word processor or text editor then print that, ad and color free.

    • Dragon

      Color printers usually have a black and white mode. Plus why print at all when laptops, phones, and pads are everywhere? Electrons are better than trees and inks and bleach and shipping paper.

  • Mike Dill

    Living on the front line of the net meeting battle here in Nevada, I have two thoughts that i would like to share.
    First, Why should solar customers have a higher basic bill? If there is a fixed cost per customer, it should go to every customer. A solar customer does not cost any more to service than a non-solar customer.
    Second, I must agree that pure net metering (100% retail cost) stops working after some percentage of installations and needs to go down to the wholesale rate.
    IF both of these are found to be true, then should the customer responsible for bad decisions that result in stranded assets for the generator?

    • JamesWimberley

      Is wholesale the right benchmark?
      1. The fed-in electricity is used by neighbours, avoiding most of the distribution costs.
      2. Wholesale is a spot rate. Utility wind and solar power is mostly sold on long-term PPA contracts; this is a comparative advantage, since gas and coal can’t match it. Residential solar also captures a hedge value. A PPA doesn’t make sense for a single house, but bundle 1,000 houses, and you have a virtual solar farm.

      • Bob_Wallace

        Shipping electricity next door saves the utility almost nothing. The wires have to be there to connect the next door house to the rest of the grid when the Sun isn’t shining. There may be a very small decrease in distribution loss due to the shorter route.

        You could bundle a large number of houses and sell the electricity in PPA form. That would work with small penetration. But add thousands of more rooftop systems and sunny hour demand crashes. With each additional 1k-PPA the value to the utility diminishes. Sunny days start looking like late nights on the wholesale market screens.

        • Ronald Brakels

          There are very large savings to be had in electricity transmission as a result of distributed solar. This is because the cost of the transmission infrastructure is determined by the peak load. And the peak load in most grids occurs in the summer during the day. This is the case even in Toronto. I think Alaska is the only US state where this is not the case and even there I think it’s close.

          Distributed solar allows savings on transmission infrastructure in four main ways:

          (1) Firstly directly by lowering the peak demand. Giving an incentive to install westward facing solar panels can increase this effect.

          (2) Through heat effects. It is cooler in the evening than during the day and heat limits how much power transmission infrastructure can handle. Shifting the peak to the evening helps keeps transformers cool during the day which lets them run up their temperature in the evening if required.

          (3) In places where feed-in tariffs for solar are lower than the retail electricity price, households and businesses with rooftop solar will shift their demand towards the day, which reduces the peak in the evening.

          (4) By making the period of peak demand shorter, just the evening instead of most of the day and the evening, grids can save money by installing energy storage instead of building extra transmission capacity as is being done in Hervey Bay in Queensland. This energy storage is going on the grid, but in the future it is likely to be put in homes and businesses.

          In Australia we used to have rolling blackouts during heatwaves because both transmission capacity and generating capacity would meet their limits. But that no longer happens thanks to rooftop solar. (Rooftop solar is currently supplying about 21% of total electricity consumption in my state at the moment.)

          But we did massively overbuild our transmission infrastructure, and that would still be the case even if there was no such thing as distributed solar, and that has resulted in some problems for us here in Australia.

          Where distributed solar can really shine is in developing nations where electricity consumption is still expanding, such as India, where it can save billions in transmission infrastructure costs. It’s a pity that many developing countries have been slow in getting distributed solar off the ground in grid connected areas.

          • Bob_Wallace

            Distributed solar could reduce transmission needs, but we’re talking about distribution not transmission.

            The wires running to your house and your neighbor’s house have to be able to supply the 200 amps/whatever service installed.

            Can transmission costs be saved? Possibly if the only place to install utility solar is way out of town.

          • Ronald Brakels

            Reducing the peak reduces distribution costs. Not as many transformers need to be built and not as many powerlines need to be strung up. And it can also save money on pole to house connections. If an high electricity consumption household was having difficulty with the 80 amp connections around here installing rooftop solar could save them the need to pay for an upgrade.

          • Bob_Wallace

            There’s still a pre- and post- solar hours peak. The hardware has to be in place to meet that demand.

            Evening demand into a residential neighborhood can easily be higher once the Sun goes down. It’s still hot and the AC may have been turned down while people were away for the day. Stoves, water heaters, TVs, etc. get switched on.

          • Calamity_Jean

            For a household with a roof full of solar, the smart thing to do is leave the AC and water heater turned up, even if nobody’s home. Or put them on timers to go on in early afternoon to pre-heat or pre-cool before the occupants get home.

          • Ronald Brakels

            Well, put them on a timer. No sense wasting electricity even if one is only getting 3.7 US cents a kilowatt-hour for it, as is often the case in Australia. And every kilowatt-hour sent into the grid is a kilowatt-hour that isn’t produced from fossil fuels.

          • Calamity_Jean

            Good points.

          • Ronald Brakels

            Peak demand never occurs in the evening. Not in Australia. But I guess I should say peak electricity consumption these days to avoid confusion. If you told me that in Gotham City or where ever peak demand occurred in the evening I would bow to your superior local knowledge, but it never happens here.

            For example, in 2014 peak electricity consumption in South Australia for that year appears to have occurred during a summer heatwave at around 2:30 in the afternoon. Now that wasn’t peak grid demand on account of rooftop solar was supplying a portion of consumption. Peak grid demand happened a couple of hours later as rooftop solar output started to decline later in the afternoon and gas generators took up the slack. So peak electricity consumption was in the afternoon and peak grid demand was in the afternoon too, it was just pushed later thanks to rooftop solar. As our rooftop solar capacity expands further we will see the yearly grid electricity peak pushed later into the afternoon, but peak electricity consumption is always going to occur much earlier in the afternoon. In fact, the consumption peak will increase as demand shifts from the evening to take advantage of cheaper electricity during the day, all else equal.

            And I understand that’s normally the case in the United States as well – peak electricity consumption occurs on summer afternoons during heatwaves. The United State’s habit of not using electricity resistance heating like we often do in winter contributes to that result. But feel free to correct me if I’m wrong.

          • Bob_Wallace

            Peak residential neighborhood demand. The parts of the grid where one finds most roof-top solar.

            Perhaps late afternoon would have been a better word than evening.


          • Ronald Brakels

            Yep, and solar reduces that peak. Especially with westward facing panels.

          • Bob_Wallace

            Not a lot of solar at 8 PM. But, whatever….

          • Ronald Brakels

            Looks like the peak is about 4:00 pm on that blue line. And note that’s in spring. The actual peak is in summer and I presume it would be higher and earlier. I don’t know what the lattitude is, so I can’t guess when the sun would set in summer, but I see that most of the United States has daylight savings, so for many Americans the sun will set after 8:00 pm.

          • eveee

            Wanna see the demand all year long real fast?

            you can stop it anywhere and look

          • Ronald Brakels

            I like that! And boy, you can really tell that New England didn’t have much in the way of rooftop solar in 2011 from that wiggly line. In South Australia where a quarter of houses have a (generally small) rooftop solar system, we often have a little peak in the morning followed by slump, followed by a much larger peak in the late afternoon and evening as rooftop solar production falls and then ceases.

            Looking at the predicted grid demand for tomorrow for South Australia (SA) here: http://www.aemo.com.au/
            I see that the morning peak looks like it will be the highest for the day. I can already tell it’s going to be a cool tomorrow. …Yep, the weather forcast is for a minimum of 17 degrees Celsius. That’s cold for summer.

            Anyway, as rooftop solar expands, as it has here, solar production eats away at grid demand until the daily peak normally occurs in the late afternoon and evening.

          • eveee

            California, Germany, Australia, are alike now. Once solar is large, it eats the daytime peak. The summer daytime peak is higher than the winter evening peak. Yes, solar reduces both transmission. Distribution depends more on the local air conditioning load. If TOU comes in, that will be reduced. And DG solar and conservation will be rewarded.
            Later, reducing the winter early evening peak will reward local storage.

          • Matt

            Why would a solar home have higher morning and late after noon than non-solar? Unless you are assuming that all solar homes are bigger than non-solar homes.

          • Bob_Wallace

            I don’t know the reason but I suspect you’ve guessed it.

            The people most likely to install solar are probably also the people with the most to gain. The high volume users.

            The average monthly electricity bill is $100. That means that a lot of people average well under $100 per month and they would have little motivation to install solar.

    • John Ihle

      Most of us, intended or not, are responsible for our utility’s bad decisions and we’re in it collectively. But that’s the thing… people don’t pay attention. And, imo, I shouldn’t necessarily be penalized for decisions made by my utility to invest in transmission or ff generation.
      I think people overcomplicate this issue. “They” could give local generators/customers a return on investment if an honest accounting of costs could be determined. Especially costs going out 20 or more years.

      • juxx0r

        I rang up my utility and asked them if i could pay more so that they can build new renewables, they laughed, they said you can pay more for existing renewables. I asked them why the hell i’d want to do that? fuckwits!!! Cant say i didn’t try.

        • Bob_Wallace

          So pay more for existing renewables (as long as the increase isn’t exorbitant). Take business away from the fossil fuel plants. As customers give a big signal that they don’t want fossil fuel energy the utility will have to change their game.

          Switch over. Send the old company a Dear John letter.

          • juxx0r

            But they weren’t using the extra to buy renewables, they weren’t using the extra to build renewables, they were using the extra to buy certificates. Now if they were prepared to leverage the extra we wished to pay them and build, they would have made 8.6% return and had certificates to sell or consume themselves, and we would have had more renewables. Basically they were muppets. Shouldn’t have been in charge of a cardboard box.

          • Bob_Wallace

            Buying certificates. Is that not giving potential revenue/profits to someone else?

            How long can a company give away profits before someone on the board becomes concerned?

          • juxx0r

            Yes, it’s borderline insane. When they could have invested the money themselves, created the renewable power themselves and still made a positive return. Instead they acted as an agent to pass through cash.

          • juxx0r

            Then along came the carbon tax and they decided to charge it on the green energy too, so not only was what they were doing stupid it was also fraudulent.

          • Bob_Wallace

            There was a carbon tax and then there wasn’t a carbon tax.

            One should not expect the route from fossil fuels to renewables to be free of bumps. There are people with vested interests in fossil fuels and many of them will fight to keep their revenues.

          • juxx0r

            They sold us carbon free electricity and then whacked a carbon tax on it. They wonder why aussies dont like their electricity suppliers.

          • LifeonBatteries

            Yes, its called VW effect, some how they got around the carbon issue, anyhow the Aussie’s moving off the grid reducing carbon level, no need for a carbon tax, abc catalyst battery report, disconnecting from the grid.


    • Matt

      Yes, the “fix cost” should be split out of the per Kwh price.

  • Robert Furst

    Nice. But regulators are politicians and they have a tendency of only thinking of themselves and keeping their jobs.

  • Freddy D

    A related aspect to this is predictability of rate structures for consumers, for solar companies, for utilities. All benefit from some degree of predictability, as opposed to the cost of whipsawing. Even if this predictability includes phase-ins / phase-outs like Germany’s FIT structures – everyone knows what’s coming when.

    It is an interesting exercise, however, to run models for consumer PV generation up to 1%, 5%, 20%, 50%, 80% penetration of households. What are the optimal technical structures and rate structures for society at each penetration level? In a market-seeding strategy for the early years, the optimal rate structure is one thing. At the other extreme, 80% of households have solar, then the optimal for society would be a different structure. I’d venture so say that the most environmentally friendly way to match power production time and location with power demand is the century-old grid, rather than relying fully on chemical battery storage. This allows people to install as much PV and battery capacity as they need, without over-building, and trade the rest of the power. So, as PV generation climbs in penetration, the optimal structure for society will evolve.

    Another interesting note: “Demand is flat”. What happens to electric demand when the transportation sector begins to move to electric in a big way? My back of envelope calculations say that electrifying the california ground transport network would increase electric demand by approx. 75%. Watch this movie begin to unfold over the next decade…

    • OneHundredbyFifty

      Vast amounts of wind power is available – http://cleantechnica.com/2015/08/04/wind-could-replace-coal-as-us-primary-generation-source-new-nrel-data-suggests/ – and night peaking. EVs are a great match since they can be set up to charge responsively to the grid. In other words, the cars can be programmed to charge when wind is peaking and reduce their charging when wind is less. By providing a larger load at night, more wind can be built raising the floor for the afternoon.

    • Ronald Brakels

      Electrifying transport in the US will increase demand by about 25%. This is because it is much more efficient to run vehicles off electricity than use internal combustion engines.

    • Dragon

      I don’t think you can keep trading excess energy at 80% penetration. The 20% without solar can’t consume enough. It would be up to the utility to buffer the excess in some sort of energy storage for later use.

      • Bob_Wallace

        If someone has enough panels on their house to produce as much electricity as they use, then they are going to be feeding in enough electricity to power several houses when their panels are producing.

        Live in the “solar middle” of the country and you have 4.5 average solar hours per year. That means that you need enough panels to produce ~5x your 24 hour use. You use 1x and send 4x to the grid for others to consume. 20% solar generation penetration and the residential grid is fully supplied with solar.

        (That 20% number will adjust up when one adds in non-residential consumption.)

  • kvleeuwen

    Net metering has downsides too.
    Two big obvious ones:
    The price of solar electricity fluctuates with fossil fuel prices, which makes investing a gamble.
    The installed capacity is limited by consumption on the same property, which wastes room on good sites and discourages improvements in energy efficiency (since electricity is essentially with zero marginal cost after the installation).
    A fair, predictable FIT does not have these downsides.

    • JamesWimberley

      A minor but clear-cut instance of the absurdity of capping solar output from a residential installation is the case of second homes and weekend cabins. It’s quite easy there to produce more than the property consumes. Why discourage this?

  • eveee

    Thanks, Mike. Nice article. A lot of the utilities resistance to net metering comes because market based signals are distorted. The FERC is working on changing that and the recent Supreme Court ruling on demand response is also helping.
    The problem with net metering is inherent to the entire antiquated system. It redistributes costs just like the whole system does, without reference to wholesale. And wholesale costs don’t properly reflect the value.
    There are many great article about the major changes in energy now. Yours is one of them. I hope many read this.
    Here are some responses to these issues of Market reform and structural problems.

    • eveee
    • Ann_Banisher

      While I can only speak to the situation in California, I think they concept does apply elsewhere.
      Back in the late ’90- early 00’s, Enron was using the peak market to pillage the consumer. Even today, the utilities value power based on Time of Use, though it is not reflected in most utility bills, those are based on consumption.
      Current and future values of electricity based on time of use (with the peak values being summertime between 12-6) have values that are at least 6 times greater than off peak values (and in the extremes heat wave peaks, those values can be more than 100 times more valuable.
      In the net-zero model for rooftop solar, individuals are not only reducing peak use needs, they are ‘trading’ their excess peak value electricity for less valuable off peak use. This should be considered a win-win.
      1. I think the utilities are planning ahead. The California Energy Commission is proposing that, starting in 2020, all residential construction be ‘net-zero’ energy use. The way they can claim that is using the TDV (time dependent value) of electricity. Once those new solar system start coming on line en mass, the solar penetration becomes truly problematic to their profit centers.
      Don’t blame the homeowner with solar, they are providing a benefit, not a burden.

      • eveee

        Yes. I get what you are saying. NEM gets mixed up with a bunch of other issues. Right not its a political football with utilities doing lobbying and disinformation to slow NEM down. That makes it difficult to discuss in a balanced way.
        Net zero housing is great for the environment and homeowner. But I don’t expect utilities to like it. At the moment, the are still paid for more consumption and have generation assets to protect.
        Right off, solar value is good for homeowner and neighbors. Minnesota and other states found the value of solar greater than retail. You seem to understand it well.
        That said, the net effect of solar is to strand utility assets, particularly generation. Reducing demand should lower costs, but it doesn’t because the utilities paid for the generation already, thinking demand would rise. It didn’t. Efficiency flattened demand and utilities were left with excess generation. Then rates went up to pay for it. Its just like water rates go up when less water is used. The utility death spiral. Compounded by the PUC public monopoly model which only allows rate of return on capital. No payback for efficiency. CPUC is one of the leaders of decoupling so that efficiency is rewarded. Its still a problem, though. FIrst Energy sued to stop Demand Response. The Supreme Court ruled in favor of FERC, though, so Demand Response will go ahead. CPUC is trying to start TOU in CA, but its doing it with an annual fixed model. This is anachronistic. The PUC is part of the old system. We need retail rates tied to wholesale real time or TOU does not represent wholesale all the time. That gives utilities an opportunity to charge high TOU while paying for cheap wholesale. Speaking of which, solar drops daytime wholesale. This is a particular problem for utilities, because with merit order effect, the lowest bids for generation stack until the highest bidder is left and the demand is met. When solar and wind come in, the high wholesale rates are gone, and base load generation gets less money. More stranded assists.

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