US utility companies push back in net metering battle

US utility companies push back in net metering battle

Net metering has helped propel the American rooftop solar market. Nevertheless, net metering customers may see less favorable energy policy in the future.

With the advent of generous incentives for consumers and growing renewable energy mandates for utility companies, solar energy production and consumption has skyrocketed across the US.

States and territories in the US have largely turned to net metering as a means of encouraging homeowners and commercial sites to set up small-scale power sources, usually rooftop solar photovoltaic (PV) panels, on their property.

In these agreements (present in 43 states, the District of Columbia and Puerto Rico), the consumer receives credits from his or her utility company for any excess solar power produced, which subsequently feeds back into the grid. Thus, he or she only pays for the “net” amount of energy used.

Subsidies and tax credits for solar

The installation of such panels is subsidized by a 30% federal Solar Investment Tax Credit (ITC), as well as additional state inducements that can reduce the cost of setting up a solar array by up to half. This does not even include third party-owned leases from companies like Solar City and Vivint Solar, which sometimes enable creditworthy customers to initially pay zero up-front.

In addition, 30 states along with the District of Columbia have Renewable Portfolio Standards (RPS) which require electricity producers to source a minimum share of their electricity from renewable energy sources. Seven other states have voluntary RPS policies.

So it is little surprise that, at 29%, solar energy was the second largest source of new electricity capacity in the US last year. In fact, there are now over 13,000 megawatts (MW) of total solar capacity across the country.

Significantly, consumers in most states receive the full retail rate of electricity or even more from their utility for the surplus energy they produce. In addition, they pay next to nothing for grid maintenance.

The costs of net metering

However, not all are happy with this arrangement, not least because it allegedly transfers costs to low and middle-income households who cannot afford panels.

The Public Utilities Commission of California, where the most ambitious RPS in the country is located (33% by 2020), estimates that the state’s solar subsidies will be made up for by rate hikes of $1 billion per year by non-solar customers, many of whom cannot afford panels. This “rate shock” may eventually dampen the hopes of green advocates to even further expand California’s RPS to 51% by 2030.

A prominent business group in Massachusetts, a state which ranks fifth in the US in installed solar capacity, claims that a proposed removal of the cap on the amount of net metering allowed will add an estimated $1.5 billion to taxpayer electric bills during the next 15 years.

Perhaps unsurprisingly, utilities are also fighting back.

Utah’s Rocky Mountain Power is pushing the state regulator for a $4.25 monthly “facilities charge” on net metered customers. In Nevada, NV Energy is trying to go a step further and tack on $5.25 to the bills of all residential consumers, including those without net metering. In Massachusetts, the aforementioned measure, H.4185, would also create a minimum bill for all utility customers.

But when it comes to net metering, utilities undoubtedly benefit from reductions in overall fuel expenses, line losses and eventual capacity benefits, their arguments against it are not wholly without merit.

The post-construction costs of electricity generation, transmission and distribution are largely fixed, much of them coming from always-running baseload power plants (which tend to be coal-fired, hydroelectric or nuclear), substations and power lines. The vast majority of net metered customers are not self-sufficient, and still rely on such infrastructure from their utility company.

Moreover, electricity purchases from net metered customers do not always contribute to meeting peak mid-afternoon and evening power demand – solar panels absorb and transmit most of their energy to the grid during midday and early afternoon.

Governments mediating between utilities and consumers

Regulators and politicians will most likely aim for a middle ground. The largest utility in Arizona, for example, spent $4 million last year on advertisements as it sought to increase the monthly bills of solar customers by $50-$100. But the state regulator only ratified a $5 per month charge.

Louisiana’s Public Service Commission struck down a request last year from Entergy Inc. to reduce the rate at which it purchases electricity from net metering customers, but is currently considering adding some charges to their bills to make up for the state’s solar tax credits.

And in a case that was widely watched due to significant lobbying from “Big Carbon,” Oklahoma Governor Mary Fallin signed a bill that would tax net metering customers, but cushioned the blow with an executive order limiting when the additional charges could be levied.

There are a number of questions surrounding the continued growth of net metering across most of the US, especially  overcapacity in some areas and all-but-expired subsidies in others. Not to mention the ITC is slated to be reduced to 10% in 2017.

However, as in Oklahoma, net metering’s momentum may ultimately hinge on politics, and not energy or economic-related concerns.

Categories: North America, Politics

About Author

Kevin Amirehsani

Kevin is a Denver-based policy and public engagement consultant. He was previously the head of operations for a solar energy startup in Lagos, researcher for the US Commercial Service in Cape Town and the Institute for Democratic Governance in Accra, and Peace Corps volunteer in Cameroon. He holds an MSc. in International Political Economy from LSE along with a B.S. and B.A. in Industrial Engineering and Political Science from UC Berkeley.