Report finds net metering is not sustainable over the long-term

The actual value to the grid that rooftop solar provides is a subject of great controversy in the United States, particularly as it pertains to net metering.

On one side, you have utilities claiming a “cost shift” to non-solar customers. On the other, you have a wealth of studies that show that at current penetration levels in almost all markets, the value of solar is at least as high as retail electricity rates.

Recently, a group a self-described independent research group weighed in with a report presented to the National Association of Regulatory Utility Commissioners (NARUC) annual meeting, which argued that net metering is not sustainable and alleges that it results in cross-subsidization of PV system owners at higher penetrations of solar.

The report by Meridian Energy Policy on behalf of Electric Markets Research Foundation notes that there are multiple benefits to distributed solar, including not only the energy provided but also capacity value, fewer line losses and the ability to prevent investments in grid infrastructure. Overall, the report found that “displaced marginal costs are the most substantial benefit offered by rooftop solar, followed by its contribution to reliability”.

However, The Sustainability of Net Metering finds that all of these values decrease as higher penetrations of solar are added on the grid.

“Unless the participating net-metering customers are subject to a two-part tariff that covers their fixed costs, non-participating consumers will bear an unfair share of the fixed costs,” reads the report’s conclusion. “An energy-only net-metering tariff creates a positive feedback loop encouraging more net-metering participants, further exacerbating a cross subsidy that leads to economic inefficiency.”

Key to understanding this claim is the report’s accurate observation that the value of electricity depends on both temporal and spatial characteristics —something which New York regulators have incorporated into their designs for compensation under the Reforming the Energy Vision process.

However, when you get into the details, some of the assumptions of the report are questionable. The report claims that “Supply occurs during a relatively short time frame, and its peak output occurs hours before the peak evening demand for electricity”; the accuracy of this statement, however, depends on both seasonal and geographic factors.

Particularly in hot climates, where air conditioning is widely used, solar reduces peak load during the periods when electricity prices are highest. This was confirmed by MIT in its May 2015 Future of Solar Energy Report, which found that solar is currently reducing peak demand in every region of the United States except the Pacific Northwest.

Additionally, the report puts the retail price of electricity at $100/megawatt-hour (MWh). This may be an oversimplification, as the current national average residential price is $129/MWh, the commercial price $107/MWh and industrial price $71/MWh. This averages to $107/MWh across all sectors, but many net-metering policies limit compensation only to the residential and small commercial systems.

While these issues may seem minor, they could skew the report’s findings. But the report’s basic assumption — that the value of solar on the grid decreases as its penetration rises — is not terribly controversial or novel. And herein lies the critical difference between the findings of this study and other studies of the value of solar, which are looking at current penetration levels, not future levels.

The report alludes to this, stating that “net metering may expand from a marginal, niche practice for early solar adopters to a relatively common practice that could have a significantly greater effect on all consumers, including those without rooftop solar.”

And while it is important to plan for the future, regulators should also cross that bridge when the industry comes to it — or at least gets closer to it.