By Will Kirby, PE, ENV SP, and Brad Jensen, PE
The rise of rooftop solar photovoltaics (PV) has highlighted the intertwined technical and financial barriers in regards to the practice of net metering, or the flow and accounting of electricity back into the grid from residential customers utilizing solar PV. Recent decisions at the state and federal levels may significantly stunt the growth of rooftop solar PV adoption. The implications of these decisions could have a substantial impact on the solar industry and on the overall fate of renewable energy growth in the United States.
Generating your own power using rooftop solar PV is not a new technology but, because of improvements in technology, policy and economics, it has become an increasingly popular renewable energy choice. It is a viable option to utilize renewable energy sources and possibly even save money depending on location, geography and system setup. Typically customers must still rely on their connections to the grid for peak loads and periods when solar energy is not available (e.g., at night). During the day a customer is likely not utilizing all of the power generated by the solar PV panels, a time when many residential customers are at work. But their solar PV panels still may be producing electricity and transmitting it back to the grid.
Energy storage solutions are in development for the residential market, but in most cases are not economical. Therefore excess power must be fed back into the grid, and this is where net metering (or net energy metering) comes into the picture. Most states allow net metering, which is the process by which excess electricity from renewables — such as rooftop solar — turns back your electricity meter as it is fed back into the grid . If a customer uses more power than is generated by the home’s solar PV, the customer is charged only for the difference. Regardless of the time of day or need on the grid, customers are allowed to sell their excess power back into the grid. This also means they can sell their excess energy during peak times (midday) and buy needed energy during off-peak hours (night). Models and regulations differ depending on which state and regional governing body the customer resides in, but as of 2013 voluntary or mandatory net metering policies were available in 43 states as required by the Energy Policy Act of 2005 . The Public Utility Regulatory Policy Act of 1978 (PURPA) laid the groundwork by requiring power providers to purchase excess power from grid-connected small renewable energy systems .
Net Metering Challenges
A rooftop solar PV system can be overwhelming to the average customer; it is not simply made up of panels and wiring connected to your house’s circuit breaker. A general lack of customer education regarding such systems is a major barrier to adopting this technology. The National Renewable Energy Laboratory (NREL) and other organizations have put together documents and software like their PVWatts package to help homeowners determine the equipment, performance estimates and financial implications of residential solar . For starters, output from the solar energy system must be regulated and converted from direct current (DC) to alternating current (AC) to be usable by the homeowner and for connection to the grid. That means a typical system must include converters, AC/DC inverters, transformers and other equipment . Utilities require that all of this equipment is properly designed, tested and sized to allow for the connection to the grid and to provide protection for the grid. Such provisions include protection for the customer in case there is an interruption on the grid itself . While a developer may handle installation and design, the utility ultimately must approve and verify that the rooftop PV and metering are in compliance with technical regulations and specifications. This is a cost to the utility that will be discussed in the context of specific state regulations.
Even though net metering is ultimately an energy incentive, or accounting tool, driven by states or utilities to encourage customers to generate their own electricity, the physical meter arrangement may vary to reflect that local policy. Essentially there are two scenarios for providing excess power back to the grid:
- Net metering
- Net purchase and sale, similar to a feed‑in tariff
Net metering is the most economical for the customer. For example, a single bidirectional meter can measure the electricity utilized (purchased) from the grid and the excess electricity produced by the customer and exported (sold) back to the grid. If the amount exported to the grid is the greater of the two at the end of the month, then the utility pays the customer for the excess power sold to the grid. Some utilities even allow the balance to be carried over each month, and pay the customer annually.
Using the net purchase and sale structure, two single direction meters are installed at the grid tie. The difference in this setup is that the meter measuring the electricity utilized from the grid would correspond to the utility’s standard retail rate, while the second meter would measure the rooftop solar PV when the customer is producing an excess amount. This rate, however, is set at the utility’s avoided cost, or wholesale rate — typically much lower than the retail rate . This difference in rates is one of the focal points of hotly contested regulatory battles across the country. Solar advocates want to maintain retail rates for net metering electricity transmitted back into the grid, while utilities say this model shifts costs to non-solar customers. Utilities are forced to invest in new infrastructure and technologies in order to accommodate this newly added generation. According to utilities, these costs are currently borne primarily by the remaining non-solar ratepayers.
Many states have recently made headlines for battles being fought among solar developers, utilities and commissioners. Among them are three states in what could be called part of the solar belt of America: Arizona, California and Nevada.
In early 2016 Arizona Public Service (APS), the largest utility in Arizona, withdrew its request to the Arizona Corporation Commission for increasing a monthly solar fee from $5 to $21. The proposed increase (outside of a rate case) was originally attributed to a claim by APS that solar users were not paying their fair share for upkeep of the grid. The utility maintained that the cost for increased solar deployment — and decreasing revenue due to net metering — was being shifted to non-solar customers. The utility said that solar customers either should be paid wholesale rates for power sold to the grid, or pay additional fees on their monthly bills — both of which would dramatically change the economics of rooftop solar. Solar developers were fighting to keep the current structure intact, with net metering and low fees . This battle had been raging for some time in the state, dating back to 2014 with the millions of dollars pumped into the elections for two of the Arizona Corporation Commissioners. Some allege that APS or its parent company, Pinnacle West, has contributed millions of dollars into the election campaigns of the very commissioners who have been fighting solar developers in the ugly and very public battle. On the other side, solar developers have funded their own negative ads and political watchdog campaigns . For now it appears the two sides have called a ceasefire and reached an agreement to drop their latest competing ballot efforts. A compromise is said to be in the works between the utilities and solar leasing companies .
The state of California is the largest rooftop solar market, so any decisions made by the state regulator, California Public Utilities Commission (CPUC), are bound to generate large ripples through the solar industry. The industry scored a major victory in February 2016 when the CPUC determined, on a 3-2 vote, that utilities must keep paying full retail rates to customers with solar PV for the electricity they produced. This decision also means that these customers won’t pay for the upkeep of transmission lines, which resulted in the withdrawal of a transmission fee that remains applicable to non-solar customers . Some utility advocates say this could lead to a “utility death spiral,” in which a utility is obligated to maintain the grid while continuing to lose revenue to rooftop solar PV and other distributed generation. One utility spokesperson said the CPUC “ignored state law and the clear direction from the state legislature, which called for them to reform net energy metering to ensure benefits are balanced with the costs.” This was in reference to Assembly Bill 327, a California bill to require the CPUC to re-evaluate how much solar customers are paid for excess energy. Solar advocates say that rooftop solar PV has other financial benefits, such as reducing climate change effects and lessening the need for building more transmission lines and generation. Included were two concessions favoring utilities: a one-time interconnection fee ranging from $75 to $150, and a non-bypassable charge ($8 to $9 per customer) that all utility customers pay. These charges fund programs for low-income residents and promoting efficiency. In addition, any new solar customers must utilize time-varying or time-of-use electricity rates, meaning rates will adjust depending on demand (i.e., real-time markets). California plans to revisit its solar incentives policy in 2019 .
Fellow sun-soaked state Nevada went the other direction recently. In late 2015 the regulator Public Utilities Commission of Nevada (PUCN) voted unanimously to adopt a new rate structure for customers with rooftop solar PV. This new phased-in structure would reduce by 75 percent what NV Energy, the largest electric utility in the state, would pay customers for the excess electricity they put back into the grid via net metering. The electricity would be purchased for the wholesale rate instead. Flat service rates for customers also would change. The commission’s decision was due to the belief that Nevada’s current rate structure unfairly shifted costs from solar users to non-solar users. The commission denied a demand charge, a decision attributed to a desire to cut down on major customers at one time . Solar developers are unhappy that this new rate structure applies to customers who have previously bought solar panels and that all of them will not be classified as a separate class of ratepayers . Like California, Nevada will also start utilizing time-of-use pricing.
Rooftop solar PV is at a major crossroads and net metering is at the crux of whether it will continue its historic growth and development. Regulators must decide if they want to spur an industry that stakeholders would almost unanimously agree has a place in America’s clean energy future, or if they want to impose costs that might severely diminish the momentum and technological advancement of solar. The net metering and cost-shifting issue is not a simple one. Data is required from both sides to help policymakers understand the full picture and make educated decisions that protect not only the current ratepayers and customers, but future stakeholders as well.
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- State of Nevada Public Utilities Commission, “PUCN to consider revised rates for customers who participate in net energy metering.” http://Pucweb1.State.Nv.Us/PDF/Aximages/PRESS_RELEASES/300.Pdf. 2015. Print.
About the Authors
Will Kirby, PE, ENV SP, is a staff transmission engineer at Burns & McDonnell, where he is co‑leader of the Sustainable Energy Solutions team, which identifies partnerships and opportunities to drive positive, clean and responsible growth in the power and energy arenas. He is pursuing a Master of Engineering degree in Sustainable Systems Engineering, with a focus on Energy Production and Distribution, from the University of Wisconsin.
Brad Jensen, PE, is a staff electrical engineer at Burns & McDonnell, where he is co-leader of the Sustainable Energy Solutions team and has project experience with substations, distribution and renewable energy transformers. He received his bachelor’s degree in engineering from Iowa State University.