Navigant Research Blog

Net Metering Fight Gets Strange

Richelle Elberg — October 10, 2013

The rapid spread of net metering has unleashed plenty of Sturm und Drang during the past year.  Let’s face it, when the Tea Party and the Sierra Club join forces, there’s definitely something strange going on (more on that below).

Here is a small sample of recent headlines that illustrate the sharp feelings involved:

“AB 327: From California Solar Killer to Net Metering Savior?” GreentechMedia, September 4, 2013

“Rooftop solar net metering is being fought across U.S.”The Denver Post, September 1, 2013

“Arizona Mulls Solar ‘Tax’” SustainableBusiness.com, August 1, 2013

“Can Germany afford its ‘energy bender’ shift to green power?” BBC News, July 9, 2013

“Dragons’ Den solar power business goes bust” The Guardian, October 4, 2012

For about a century, the electric power industry was guided by a straightforward business model:  utilities build power plants and generate and distribute electricity; regulators approve rates to prevent monopolistic pricing and provide a fair return on investment to the utility and its investors; and consumers pay that rate to the utility for the kilowatt-hours consumed.  The power flowed in one direction and payments for that power flowed back upstream.

Cracks in the Foundation

Today, however, the world of electricity generation and distribution is going through a major transition.  In addition to a growing number of deregulated markets, the accelerating adoption of renewable distributed generation (DG) — primarily solar, but also wind and biofuels — means that the old business foundation upon which utilities rest is cracking.

As solar penetration deepens, there are legitimate concerns, primarily over how utilities can continue to maintain the distribution grid when fewer (and generally lower-income) ratepayers are supporting it.  Major utilities across the United States are now putting forth controversial proposals to either charge a monthly fee to solar customers, or to reduce the amount those customers receive per kilowatt for excess energy.  Solar advocates are up in arms, but without a change to the system, the shrinking base of traditional utility customers will bear the brunt of paying to maintain and upgrade an aging distribution network.  How these issues are resolved will affect electric utilities worldwide for years to come.

Strange Bedfellows

Meanwhile, the solar industry, which was injected with billions in government and utility-sponsored subsidies, is now at risk of the severe after-effects of that artificial growth spurt.  Businesses, jobs, and economic growth are at risk if those subsidies are withdrawn too abruptly.

Finally, consumers who have made the investment in solar panels based largely on net metering’s advantageous payment structure are worried that while they may be grandfathered in their utility’s current program, any new buyer of their home might not be.  Home values will likely decline if net metering reform takes place.  At the same time, the solar-challenged neighbors of these homeowners are seeing electric rates rise steadily as this table from the U.S. Energy Information Administration illustrates.

Average Price of Energy, United States: 1990-2011

 

(Source: EIA)

Beyond these primary stakeholders, environmental groups, like the Sierra Club, and political groups, like the Tea Party, have joined the fray.  The former is promoting the need for greener energy, and the latter is worried about private property rights.  (In Georgia, consumers are not allowed to lease solar equipment, which has led to the teaming of these strange bedfellows on the solar battleground.)

The problem is complex and a solution that is fair to all may simply not be possible.  None of the stakeholders is likely to get everything they want in a solution, but if the reality-TV drama of today doesn’t give way to balanced compromise, and soon, it is likely that no one will get what they need for long-term survival.  In my next blog, I’ll examine the problems Germany is now facing as a result of the rapid transition to renewables, including the fact that its carbon emissions actually increased in 2012, partly as a consequence of its DG policies.

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