By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
A much-hyped petition to the Federal Energy Regulatory Commission (FERC), which sought to end net metering on customer-side rooftop solar energy in the United States, was put to an unceremonious end last week. FERC commissioners unanimously voted to dismiss the petition. Submitted in April by a secretive group calling themselves the New England Ratepayers Association (NERA), the petition across the solar industry, with some actively questioning whether FERC’s response to the petition would be a fait accompli. Yesterday’s dismissal alleviates those fears and saves net metering, but the future of the popular program remains uncertain.
Net metering began in the United States over 40 years ago as a way to compensate small-scale wind and solar owners who wanted to use the electricity generated by their systems at different times of day. Since solar panels only generate power when the sun shines, a consumer may end up producing too much electricity during the middle of the day and too little in the evenings and at night. Net metering solves this problem by paying the consumer retail rates for their excess electricity during one portion of the day to offset the costs of power when the sun isn’t shining. This simple mechanism became the bedrock of solar policy across the United States, helping to enable the incredible growth in residential solar installations across the country.
Net metering policies are set at the state level, and this patchwork creates different regimes in different jurisdictions. The petition before FERC sought to preempt state rules with federal oversight, and the fear among solar proponents was that a fossil-friendly administration would effectively shut the programs down. After NERA filed its petition, there was immediate speculation that the shadowy group was funded by utilities, who have traditionally viewed net metering as a threat to their bottom-lines and fought expansions of the program. When many stayed silent on the petition itself, that speculation grew and later identified a link.
Utilities have fought net metering because it costs them money. When a solar customer is paid retail rates for their excess electricity production, the utility is paying a significant premium above the wholesale power rates it pays to commercial producers. Many have argued this is worthwhile policy, as it incentivizes cleaner means of production, but others have countered that the program is and forces utility customers to subsidize the solar panels on other roofs. Some go as far to argue that net metering is essentially a form of regressive taxation, with the beneficiaries tending to be higher income .
But net metering has another, more existential, problem: Bundled into a significant portion of retail electricity rates are costs unrelated to the production of electricity, including grid management and maintenance. When solar owners are compensated for extra power at the retail rate, the utility loses out on revenue it needs to maintain the wires. At small penetrations of solar, this loss is manageable, but as solar installations grow, utilities can find themselves serving clients who pay less in utility bills than it costs to keep service going to those homes. As a result, net metering can’t scale; at some point, customers need to pay (more) to maintain the grid.
Already, states have pulled back from net metering, including some at the leading edge of solar and renewables deployment. Hawaii, perhaps the clearest example, eliminated net metering in 2015, despite maintaining a 100% renewables goal by 2045. In its stead is a more complex system wherein solar customers are paid for the excess power at less-than-retail rates. Permits for installs quickly began to tumble . Other states have enacted distributed solar caps, and once a cap is hit, net metering is no longer available for new solar customers. Illinois hit its cap earlier this year, a process to transition away from net metering programs. Phaseouts have in Arizona, Connecticut, Indiana, Kentucky, Michigan, and New Hampshire.
For those considering a solar purchase, the time may be now. Most programs grandfather in those lucky enough to interconnect while net metering remains in place, and the impending roll off of the federal investment tax credit adds further motivation. FERC has taken the threat of an immediate net metering cancellation off the table, but expect more phaseouts as solar continues its explosive growth. Net metering programs won’t be around forever.
Originally published at https://newenergyrisk.com on July 22, 2020.