They appear periodically, but predictably — media reports on state-level debates over net metering that reduce the story to a struggle of irreconcilable and unevenly matched forces.
It’s the powerful corporate utilities seeking to block consumer access to rooftop solar and maintain control of the grid, versus the plucky, disruptive solar companies, fighting to bring clean, free power — and energy independence — to the masses.
Such oversimplification is as misleading as it is counterproductive. Net energy metering — or NEM, the compensation solar owners receive for the excess power they feed back into the grid — is part of a much larger transformation now underway in our energy system. The issue is also more complex and multifaceted than most people appreciate.
California is a case in point. Under a 2013 law, the California Public Utilities Commission (CPUC) must come up with a plan for net-metering reform by the end of this year. The proceedings on this effort — including more than 320 documents, all publicly available on the CPUC website — go back to July 2014, which is just one measure of how complicated the whole process has been.
The CPUC’s call for proposals for an NEM “successor” rate plan went out in June of this year, and in response, on Aug. 3, 16 different proposals were posted on the commission’s website. Media reports, however, have focused almost exclusively on the three from California’s investor-owned utilities — Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison.
Of the remaining 13 proposals, several deal primarily with how net metering or its successor can be used to expand access to solar energy for low-income communities, while others target specific customer classes.
The California Farm Bureau Federation asks that, whatever net-metering reform is adopted, it continue to include aggregation — that is, allowing generation from one solar installation on a farm to be credited to more than one meter. The Federal Executive Agencies, a Department of Defense office that maintains military bases in California, wants streamlined interconnection policies and net metering for solar projects of more than 1 megawatt.
Across the board, filings from solar-industry trade groups and advocates argue that to maintain solar market growth and jobs, net metering should be continued pretty much as is — with a few minor modifications.
Cost-shifting and post-ITC market growth
Arguably, however, the more interesting and thoughtful proposals come from environmental and consumer groups, including the Sierra Club, the Natural Resources Defense Council (NRDC), the CPUC’s Office of Ratepayer Advocates (ORA) and The Utility Reform Network (TURN), a San Francisco-based nonprofit.
While all take somewhat different approaches, these proposals tackle the key flashpoints in the debate. They either acknowledge some shifting of grid upkeep costs from solar to non-solar customers or find, somewhat counterintuitively, that rate designs that cut savings for solar customers might not stop market growth.
The ORA proposal is the most direct on the cost-shifting issue, which it sees in terms of the evolving economics of solar — specifically that solar prices are continuing to fall while utility rates are on the rise. The price decreases in the residential solar market are not being passed on to all customers in the form of lower net metering costs, ORA argues in its proposal.
FIGURE 1: A Perverse Incentive? Solar Costs vs. NEM Compensation
Solar costs fall (top), while retail rates, and NEM compensation, continue to rise (bottom)
Source: Lawrence Berkeley National Laboratory, DOE SunShot Initiative
“Currently, as retail rates increase, NEM compensation increases, which is a perverse incentive for a declining cost resource,” the ORA proposal says. “The existing NEM tariff is a mechanism that doesn’t account for the explosive growth of solar, the declining costs of solar, the rising California retail rates, and the need for solar customers to share in the costs of the distribution system.”
ORA’s proposed solution is to continue retail-rate net metering, with an added “installed capacity fee” based on the size of individual installations. The fee would be introduced on a gradually increasing “glide path” linked to total net-metered solar megawatts on the grid.
Existing solar customers would be grandfathered in at retail rates, but beginning in 2017, new solar customers would pay a monthly fee of $2 per kilowatt; that is, a customer with a 5-kilowatt system would pay an extra $10 per month. The fee would rise to $5 per kilowatt between 2020-2025, and then to $10 between 2022-2027, depending on when the market reaches certain benchmark levels of net-metered solar.
FIGURE 2: The ORA Plan — A "Glide Path" for Solar Fee Increases
Source: Calif. Office of Ratepayer Advocates
Customers in each tier would lock in the fee they pay for 10 years, based on whatever the rate is at the time their solar is installed. At the end of that time, they would pay whatever the current rate is.
The Sierra Club also proposes that net metering at retail rates continue, but based on time-of-use (TOU) rates that would vary electricity prices — and hence credits to solar customers — depending on the time of day they feed their excess power onto the grid. For example, excess solar generated at midday, when demand is low, would be credited at a lower rate than solar fed back to the grid during a late afternoon or early evening peak.
Using market simulation models revised from the standards developed by the CPUC, the Sierra Club was surprised to find that neither TOU rates nor the likely expiration of the 30 percent federal Income Tax Credit (ITC) at the end of 2016 affected potential increases in residential solar installations. Still, the club’s proposal discounts these projections and instead echoes a proposal from the NRDC that no changes be made to net metering until 2019 to give the residential market time to absorb the loss of the ITC.
California law calls for the new rates to go into effect in July 2017, and with the law’s year-end deadline for a final ruling looming, the question now is how or whether the CPUC will be able to synthesize the varying proposals into a single workable compromise.
The Hawaiian model: Multiple options for NEM reform
The Hawaii PUC offered another approach in its Oct. 12 ruling establishing a menu of NEM reform options based on the specifics of the state’s high-penetration solar market, high electric rates and likely adoption of energy storage and other advanced technologies going forward.
Solar customers will be able to choose a net-metering option that pays them about 50 percent of Hawaii’s high retail rates for power they feed back into the grid. Option 2 is self-consumption — that is, pairing solar, storage and other energy management technology so customers can use all the power they generate to cut their bills, without feeding any back into the grid.
A third possibility will be a time-of-use rate, to be developed by the Hawaiian Electric Company, the state’s main investor-owned utility.
Certain to be closely watched, the Hawaiian model underlines the fluid situation that regulators, utilities, solar companies and consumers now face on net metering and a range of associated issues. Any solution or suite of solutions adopted today will evolve along with ongoing changes in technology, utility business models and customer demand.
The transitions ahead will, by their very nature, create uncertainty for utilities and solar companies, both of which have large financial interests and thousands of jobs at stake. But achieving our common goal — clean, reliable and affordable power for all — will depend on a collaborative, rather than divisive, approach to the issues, recognizing their complexity and ensuring that all stakeholders are well informed and all voices are heard.
This piece was originally published at SEPA’s utility solar blog and was reprinted with permission.
K Kaufmann is communications manager for the Solar Electric Power Association. She previously covered renewable energy projects and policy in California for The Desert Sun in Palm Springs. She can be reached at firstname.lastname@example.org.
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