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The Ins and Outs of Net-Metering

May 20, 2016

One of the reasons homeowners decide to invest in rooftop solar comes down to one simple thing: money. Though a solar PV system might seem costly up front, it’s the longterm benefits consumers met pay attention to. When producing your own energy, your electricity is no longer pulled solely from the traditional energy grid — that’s the money you pay at the end of the month to your local utility company. In fact, depending on your system’s size and production, and your personal energy usage, you may end up returning excess energy to the traditional grid. Net-metering is a mechanism that allows residential solar consumers “who generate their own electricity from solar to feed electricity they don’t use back into the grid” and receive a credit for doing so. 

How does net-metering work? 

Net-metering is a billing mechanism that allows solar consumers to be financially independent of the grid by giving consumers control over their utility bills. A PV system might generate more energy than the home uses, in which case the excess electricity would be transported back to the nearest major transformer. 

Net-metering policies vary by state, but many utility companies will install a bidirectional meter once a solar user establishes their interconnection agreement with the utility. These meters can run both forwards and backwards. If your electricity is net-metered, your meter will run backwards “to provide a credit against what energy is used at night or other periods where the home’s electricity use exceeds the system’s output. Customers are only billed for their ‘net’ energy use.” 

You may be thinking: Why do I have to be a customer of the utility companies at all if I have solar panels? Using solar makes you financially independent from the grid, but not physically. There are times when your home’s electricity exceeds the ability of your PV system, and you’ll need to rely on the energy you receive from the grid. To be completely independent requires the use of a battery storage system, which we’ll talk more about next month. 

As of 2015, the solar industry employed 174,000 Americans. Net-metering continues to be a topic of interest because choosing the ways we produce and pay for power is one of the central benefits of going solar. In addition to lowering solar users’ utility bills, net-metering brings even more benefits in the form of increased jobs, income, and investment. Metering policies increase the demand for solar PV systems, and in doing so, also increases the demand for installers, electricians, and manufacturers. 

So what’s the problem?

If net-metering increases demand for alternative energy and increases jobs, who could find a problem with it? Well, it’s those pesky utility companies. Some utilities perceive net-metering policies as lost revenue opportunities. Instead of everyone consuming from and paying their local utility company, consumers now have enough control to lower their monthly bill. While some utilities have been able to modify their business plan to become more inclusive of and friendly towards solar users, there are still some others who have succeeded in actually increasing solar users’ utility bills by decreasing their net-metering rate while increasing fixed charge fees. 

Net-metering policies differ by state, and as of May 2016, only four states lacked any active legislation concerning net-metering. Some states have stood strong behind the solar industry by passing laws with progressive metering policies, while some others have fallen to the complaints of their local utilities. 

The Good 

Recently, many states have rallied behind the solar industry by passing favorable legislation in support of numerous solar policies. In 2015, Freeing the Grid gave 16 states an “A” rating regarding their net-metering policies, including Arizona, Connecticut, Delaware, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Utah, Vermont, West Virginia, California, and Colorado. Each state differs in their specifics, but we’ll focus on the advances made in Colorado and California. 

Policies in Colorado

In Colorado, solar contributed $13.6 million in annual grid benefits and accounted for 3,600 jobs. In just 5 years, the industry has seen a 50% cost decrease, and 78% of Colorado voters now support net-metering. Colorado has had active net-metering and interconnection regulations since 2005. 

One of the biggest points of contingency for net-metering is how much a solar user should be compensated for the electricity they feed back into the grid. A solar user can be compensated in one of three ways: above retail rate per kwH, at retail rate, or below. 

In 2016, Colorado’s net-metering policies were up for a new vote, and legislators unanimously decided to keep the standard, saying that the solar crediting program was satisfactory and balanced as is. With the current Colorado policies, a homeowner who decides to go solar will receive a bidirectional meter free of charge from their utility company, and will continue to receive a “credit for every kwH an array puts on the grid at the same price residential customers are charged for electricity.” 

Policies in California 

Colorado’s policies are doing good work to support the solar industry, but California is said to be setting the national standard for net-metering. The state has a plan to be 50% reliant on renewable energies by 2030, and San Francisco is making further headway on this goal by requiring all newly-constructed buildings to have solar. California already represents nearly half of the country’s solar capacity with 450,000 solar arrays. 

California’s net-metering laws are very similar to those in Colorado, given that utilities credit solar customers at full retail rates, which in California chalks up to about 17-20 cents per kwH. 

All across the nation, utilities argue that the retail rates or “fees are overly generous and that solar owners are piggybacking on the electrical grid without paying a fair share of its cost.” However in California, the newest net-metering policies also offers “concessions to utilities, including additional minimum charges for solar customers and the establishment of time-of-use rates that raise the price of electricity consumed during hours of peak demand.” Time-of-use rates essentially changes the price of electricity during different times of the day to better match of real-time costs of generating and transmitting energy across the grid at large. 

Rather than utilities only seeing the negative of perceived revenue loss, officials should instead be more receptive to these time-of-use measures, and the words of Sacher Constantine, Director of Policy at the San Diego-based Center for Sustainability who says, “The California system will likely influence future net-metering battles across the country. It signals a future approach that can strike a balance between the interests of solar power owners and the legitimate costs to maintain the grid.” 

Utility companies’ central argument is that net-metering unfairly shifts costs to non-solar using customers. When you pay for your monthly electricity bill, you’re paying for the amount of energy used as well as general operating costs for maintaining the grid. If solar users are only receiving a credit for the energy they transmit back to the grid, then it may be fair to say those users are no longer contributing (money) to the grid’s maintenance; however, California’s inclusion of time-of-use rates helps to solve this conflict. 

Now, the bad: 

Even though many states have passed policy to encourage the solar movement, there are also those who have established regulations that prove incredibly regressive to the solar industry. Two of these regressive-policy states include Hawaii and Nevada, talked about in depth below. 

Policy in Hawaii

Just last fall, Hawaii was making front-page news for its solar efforts and how well the state was taking to the increase in solar panels. But as of October 2015, the Public Utilities Commission (PUC) ruled to close all net-metering options to new solar users. Instead, solar users may choose from two new tariff options, which still allow for some credit to be given, but far less than those provided with net-metering. 

The newest policies in Hawaii jeopardizes the solar industry and negatively impacts middle and lower income consumers by taking away one of the central benefits to going solar, as you’ll see in the Nevada case study below. 

Policy in Nevada

Nevada made some of the most drastic and negative changes to their net-metering, despite being one of the states with the most exposure to sun in the nation. Net-metering was first introduced in 1997, and until this year, Nevada utilities paid retail rate to solar users, which came out to be about $623/year in the south, and $471/year in the north. 

In 2015, the Nevada PUC determined there needed to be a new study looking at the electric rate structure in hopes of discovering new ways to shift the costs. In December of 2015, the Nevada PUC decided that utility companies would change to paying wholesale rates to current net-metering users

In addition to the new wholesale rates, the PUC tripled the fixed charges solar customers will pay over the next four years, and reduced the solar credit customers receive for “net excess generation” by three quarters. Regulators said the new legislation worked to make solar customers pay their “fair share” of Nevada Energy’s grid. 

Almost immediately, solar industry folks spoke out about the new regulations. Solar companies warned that these changes would negatively affect the industry and make rooftop solar economics unworkable. After the new rates took effect on January 1, 2016, Solar City, SunRun, and Vivint all announced “they would have to cease operations in the state. Local installers have also been forced to cut staff.” 

What’s worse? The new regulations apply retroactively to the nearly 18,000 existing Nevada solar customers, which erases nearly all of the savings from going solar and actually increases monthly electricity bills thanks to the increased fixed charge. 

But the story doesn’t stop there. Nevada is now facing additional backlash from solar customers and industry people. After the new laws took place, a group of solar customers launched a class action lawsuit against Nevada Energy claiming the utility conspired to unlawfully reduce incentives. Those who criticize the 2016 regulations say that the new regulations might even violate the contracts clause of the constitution for “undermining an existing agreement” between solar companies and electricity customers. 

After these outcries, Nevada Energy conceded just a bit, and said it would file a proposal to grandfather in those existing solar customers. 

Remember this though: the blame is not being placed on the solar companies, but the utility companies lobbying for the regulation changes that benefit their companies, rather than the citizens and solar employees working towards renewable energy. 

So the question remains:

Is net-metering in the best interest of the solar industry as we continue to move forward? Compromises must be found, certainly, but the solar industry and utility companies must continue working towards a more inclusive solar culture that includes middle and lower-class families. This means working towards state-supported policies that continue to provide a financial incentive for going solar, rather than working backwards and making solar an all-expense, no pay-off renewable energy resource. Whether net-metering is the be-all-end-all solution has yet to be answered, but one thing is clear: states must continue to reward solar output, which means renewing solar tax credits at the end of 2016, rather than watching them expire. 

 

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