Net metering exists in 44 states. Initially established to help solar and wind while they were new and emerging technologies, net metering has become a cancer on the grid.
Net metering allows the owner of solar panels supplying electricity to the home to sell excess electricity back to the utility at the same rate electricity is purchased from the grid1.
Net metering has allowed home owners to supply most, if not all, their electricity needs form their roof-top installation and sell the excess to the utility. It’s a profitable venture for the homeowner, especially when he also receives subsidies for installing the solar system in the first place2.
Wind power installations can receive the same benefits, such as a farmer who installs wind turbines on the farm.
These individual solar or wind power systems are referred to as distributed generation3.
Both solar and wind power companies, together with their associations, now say that the cost of solar and wind have reached grid parity. In the case of solar, it means the cost is below $1 per watt. In the case of wind, it means the Levelized Cost of Electricity (LCOE) per kWh is competitive at around 11 cents per kWh.
If solar and wind are now competitive without subsidies or support, why should they be afforded the benefit of net metering?
Net metering picks the pockets of neighbors who don’t have PV solar panels or a windmill on their property.
First, the utility is forced to buy expensive electricity, say at 11 cents /kWh that it could generate for around 6 cents per kWh. The extra cost has to be paid by someone, most likely the neighbors as rates go up. The increased cost could possibly be paid for by shareholders with fewer dividends, such as retirees and pension funds, when the utility earns less.
Second, the homeowner generating electricity for personal use, while selling the excess to the utility, isn’t paying for the use of the distribution and transmission lines, including their maintenance. Building and maintaining those lines, including upgrades for the smart grid, are being paid for by the homeowner who doesn’t have a PV roof-top or wind turbine installation.
From top left clockwise, transmission lines, sub-station, overhead distribution transformers and distribution lines, underground pad mounted transformers for underground distribution. Photos by D. Dears
As the picture illustrates, net metering doesn’t pay for building or maintaining transmission lines, sub-stations, overhead distribution, or underground distribution, and probably not for power plants … essentially all the infrastructure on the grid.
The owner of the PV roof-top system or wind turbine is getting off scot free, while the neighbors are picking up the tab for this infrastructure.
In addition to homeowners installing PV systems, 20 states allow third party ownership.
This has accelerated the increase in PV systems and, to a lesser extent, wind power.
Third parties can offer homeowners and commercial establishments a great financial deal, where the homeowner or commercial establishment doesn’t have to spend the upfront cost for the system.
The third party will pay for installing the system, allowing the homeowner or commercial establishment to use the electricity they need while selling the excess to the utility using net metering.
In four states (and possibly others), the advent of third parties has resulted in most PV systems being installed by third parties … not individuals. In Massachusetts and California, over 60% of all PV systems in the first quarter of 2013 were installed by third parties. In Arizona, it’s nearly 90%. These followed steady increases during 2012.
No longer is net metering small potatoes.
Third parties lease the systems to homeowners and commercial businesses while selling electricity to the utility at the going rate (around 17 cents per kWh in California), taking advantage of the federal and state credits, and using accelerated depreciation … while writing off expenses, as would any business, for tax purposes.
It would appear as though third party operators are doing very well at the expense of the utility and the average homeowner.
Renewable portfolio standards (RPS) are also driving this phenomenon. RPS is leading, year by year, to higher prices for electricity in the 30 states that have mandatory RPS. These policies encourage (actually force) the adoption of renewables such as solar and wind.
The reason given for RPS is that renewables will reduce CO2 emissions.
Net metering, distributed generation, and RPS are causing serious harm to the utility industry, which is required, because of their franchise, to serve all the people in their territory. Utilities can’t pick and choose who they serve, so they are stuck with net metering and distributed generation.
The more people and commercial businesses who add PV solar or wind with or without third party owners, the greater the harm to the system … which at some point will become unworkable, either financially or physically.
Homeowners and farmers who install PV solar or wind turbines are only doing what’s best for their families. The problem lies with those who have pressured legislatures to allow net metering, etc.
Most people aren’t aware of this problem, but the Greens see it as one more way to reduce CO2 emissions.
The Green strategy is clear. Get enough people hooked on net metering, and it will be too difficult to end or change it.
Notes:
Feed-in tariffs, popular in Germany and proposed by various jurisdictions in the United States, are net metering on steroids, where the owner gets paid a far larger amount for electricity sold to the grid, than the rate paid by consumers for purchasing electricity from the utility.
The federal tax credit for PV solar is currently 30%, but will change to 10% in 2017 for third party systems and be eliminated then for homeowners. Accelerated depreciation is also allowed for third party owners. Some states also offer credits: For example, Massachusetts offers $0.85 /watt for PV solar systems. Utilities may also be eligible for renewable energy certificates that they can sell.
Distributed generation also includes micro-grids.
Read more of Donn’s columns at his blog, Power for USA.
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