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Net Metering, Value of Solar Tariffs, and What They Mean for Installers and Their Customers

One of the hottest topics right now in the solar industry is the future of net energy metering (or “net metering”), a policy that allows solar customers to be credited on their utility bills for any extra power that their solar systems produce.

What’s to become of net metering, what might replace it, and what do these changes mean for installers, customers, and utilities? That’s hard to predict right now, but some recent events may give us some clues as to where we’re heading and what the future holds for each stakeholder.

 

Freeing.the.grid.state.report.card

What grade did your state get for net metering? See an interactive map at freeingthegrid.org

 

Net Metering’s Benefits

To understand what’s at stake, let’s first go through net metering’s benefits for customers, installers, and the utility:

For solar customers: Net metering allows customers to install a larger solar system that meets their total day and night annual energy usage without having to purchase expensive onsite battery storage. Thus, it gives consumers the ability to save more on their electric bills than they would without net metering. Until energy storage prices come down, net metering is the next best thing to having a battery.

For solar installers: Net metering allows solar installers to design larger solar systems that meet the entire day and nighttime needs of their customers’ homes and businesses. Without net metering, it would only make financial sense for customers to install enough solar to offset daytime energy consumption. Since many residents work outside their homes, a home’s daytime energy usage can be relatively small, so installers would see a significant drop in installation sizes without net metering. That would of course reduce their business and probably require a smaller workforce, which would in turn affect workers in the solar industry.

For utilities: While utilities may claim that net metering unfairly subsidizes solar customers by allowing them “free” energy at night, they discount the value of extra solar power being fed into the grid and being used by neighboring homes and businesses. Utilities also benefit from the avoided costs of not having to build more power plants or use expensive peak power plants, plus they receive grid efficiency savings by not having to transmit energy for long distances over inefficient electric lines. Finally, utilities ignore the value of decreasing pollution and their carbon emissions.
 

 

Current Net Metering Battles

So, utilities see net metering and solar as a problem to their bottom lines. As a result, they and their lobbyists, such as ALEC and the Edison Electric Institute have been trying to devalue solar and net metering by asking public utility commissions to credit solar owners with only half the kilowatt-hours that they generate or by imposing monthly fees that reduce solar’s savings and payback period. Another tactic is to cap the number of solar owners who can use net metering.

Thankfully, most of these attacks on net metering haven’t been successful. Several solar advocacy organizations, including SEIA, Vote Solar, The Alliance for Solar Choice (TASC), and the conservative-leaning Tell Utilities Solar won’t be Killed (TUSK) have shown legislatures and state public utility commissions the true value of solar.

Briefly, the wins include:

  • Arizona imposed just a small $5/month fee on solar owners, pushing back much higher fees that would have significantly increased the net benefit of installing solar.
  • In Vermont, the net metering cap was quadrupled from 3.5% to 15% of its utilities’ grid capacities.
  • Likewise, New York also saw its net metering cap raised from 4% to 15% of each utility’s grid capacity.
  • In a huge win, California recently completely lifted its cap on net metering through AB 327 and guaranteed that anyone who goes solar before 2016 receives the traditional net metering benefit for 20 years after they go solar. What’s not clear is what happens to new solar customers who install solar in 2016 and beyond…

The Value of Solar Tariff

In California, Colorado, Arizona, and many other states, net metering’s anointed replacement policy is known as the “Value of Solar” or VOS.

The idea is to place a dollar amount rate on the kilowatt-hours (kWhs) that solar installations produce. Rather than being a one-to-one credit as net metering is, a Value of Solar Tariff (VOST) would pay customers a direct, flat, payment for every solar kWh sent into the grid over a 20 to 25 year contract.

The problem is…how much is a solar kWh worth compared to a utility kWh? What values should be taken into consideration? Clearly, the utilities want the VOST to be as low as possible, while solar advocates want the VOST to be as high as possible.

Utilities and solar advocates have proposed different methods for calculating the VOST value. The first state to actually produce a formula is Minnesota, which may prove to be the go-to model for other public utility commissions in other states.

Under Minnesota’s formula, the VOST must include not only the value of the kWhs contributed to the grid, but also other avoided costs, such as the avoided cost of building power plants, avoided pollution, and avoided carbon cost. While the dollar amount result of that formula has not been determined yet, experts agree that the VOST rate will be a few cents higher than the one-to-one retail net metering rate that the utilities were previously using.

If Minnesota’s valuation proves to be a model for other states, then the VOST should be a good replacement for net metering that helps encourage the solar market to continue its growth. On the other hand, if other states reformulate or devalue the VOST, then solar growth may be stunted for installers—and limit faster paybacks for their customers.

To keep up on your state’s net metering battles and support pro-solar advocates, sign up for email updates from Vote Solar’s Coalition for Solar Rights website at www.oursolarrights.org. Another great resource is the Institute of Local Self-Reliance. This pro-solar energy think-tank is based in Minnesota, but it keeps track of all net metering/VOST battles.

Author: Solar Fred

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