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Net Metering

To understand the Big Fight over Net Metering, you must understand that some utilities favor solar power to the point of assisting its growth, while others do not.  Read more about that here (March, 2015) herehereherehere and here.  The fight is over the value of solar to utilities, and that value (analysis updated here) is reflected in Net Metering.  For ways in which utilities can grapple with the economics of such "load defection," click here and here).

Stop and learn what is Net Metering.  Here's a video on it.  See also this April, 2014 column, this excellent March 25, 2014 column, this March 17, 2014 column, this September, 2013 article and this May, 2013 piece on it, plus  this, and finally, this March, 2015 "follow the money" analysis.

A key concept: Value.  It's indisputably a political term.  This fellow says net metering is just another way for solar homeowners like me to pick my neighbors' pockets.  Indeed, he contends here that it's all part of a multi-level, gross government interference in the free market for energy, one that results in greenies directly and indirectly picking non-greenie pockets. In my own state, Georgia, Georgia Power agreed (in November, 2013) to drop its request for a special "solar fee" to bill to array owners.  

Here's a December, 2013 follow-up story on that.  This March, 2015 piece contends just the opposite -- that rooftop solar's a net benefit because it spares utilities peak-load energy costs.  Wisconsin's debate on this is  described here.  And here's an Edison Electric white paper warning of distributed solar power's "market disruptive" effects (scroll to its "Summary" at the paper's end, where it indirectly calls for taxing solar PV customers to counteract "cross-subsidization" by non-PV customers and each utility's investors).  Standard utilities are now starting to express long-term worry about rooftop solar's success (see also this and this, plus this piece on the growth of anti-solar taxes and fees).  This January, 2015 essay is particularly thoughtful and persuasive.  And this February, 2015 proposed Indiana legislation, proponents claim, would try to "strike the right balance" between solar and utility economic interests.  March 11, 2015 update: That proposed legislation was just withdrawn.  (Source).   Florida is going through the same debate according to this WSJ, Feb, 20, 2015 piece, which also sports a map showing which states have the most solar power online, and also which permit third parties to compete with utilities.

But first, stop and grasp what is Net Metering, or Net Billing (as opposed to a Feed-In-Tariff, explained here). For starters, note that the terms  Net Metering and Net Billing have been used interchangeably:

"Net billing involves only one meter and one net transaction. Under net billing, the [solar power customer, or "cogenerator"] produces power primarily for the owner's needs. However, at times the [cogenerator] generates 'excess' power which is supplied to the utility through the single meter. Other times, the [cogenerator] may not generate sufficient power for the owner's needs and [it] draws power from the utility through the single meter. Electricity flows through the meter in both directions and is netted out and one meter reading [is] made at the end of a billing period." MidAmerican Energy Co., 94 F.E.R.C. ¶ 61,340, at 62,262 (2001) (order denying request for declaratory order) (citation omitted). The term "net metering" has been used to describe the same process. See FirstEnergy Corp. v. Pub. Utils. Comm'n, 95 Ohio St.3d 401, 768 N.E.2d 648, 650 (2002) (defining "net metering" as " 'measuring the difference in an applicable billing period between the electricity supplied by an electric service provider and the electricity generated by a customer-generator which is fed back to the electric service provider' " (citation omitted).

Windway Technologies, Inc. v. Midland Power Co-op., 696 N.W.2d 303,304-05 (Iowa 2005).

The explanation can get pretty complicated, so here's another video explaining "Net Metering."  It gets complicated because it is a controversial topic, as described hereherehere, and here ($100/month fee proposed) plus here and here.  In my own state (Georgia), Georgia power wants to impose a special grid-maintenance fee on solar power producers.  (Source).  And an Arizona utility was caught secretly funding out-of-state, anti-net-metering propagandists.

What's all that about?  Basically, utilities want to pay a fair market price for solar but also want solar-providing customers to pay their share of the grid cost and not constructively pick the pockets of non-solar ratepayers.   (Source).  

The most common argument that I've faced is that it's not fair for Solar PV ratepayers to "free ride" their local utility (by zeroing out or negativing their power bills) while everyone else must pay.  What if, these folks ask, everyone went solar and no one paid, thus revenue-starving the utility to death?  Here's an answer I posted online:

I'll go with the free market approach here. If the power that my Solar PV array produces is worth something to the local utility, then that's what I'll accept. My utility claims to pay me only "avoided cost" -- wholesale price -- for my excess power. That's Georgia law (my state). I have never demanded, nor argued for, the full retail rate on my electricity backfeed. 

When 30, 40, or even 100% of the utility's users do what I do, it can collect a min. maintenance fee from them to ensure a sufficient revenue flow.  Mine, for that matter, is an electric membership cooperative (EMC), so it's not supposed to make a profit, just deliver electricity at the lowest cost that it can. 

Finally, assume only 30%  of the EMC's members invest in a solar array and the “have-nots” wind up paying more.   I have no problem with that.  Consider what would happen if I did NOT invest in a solar array but instead mined and sold coal to my own coal-powered plant, then sold its electricity to my EMC and made more than my monthly power bill in profit.  

See the non-difference?  Since money’s fungible, the EMC would pay me far more for my (coal) energy each month than I’d ever pay it for my power.  Would you complain that wasn’t “paying my fair share” into the EMC?  Of course not.

Look, those who invest in (especially green) power sources should reap all the rewards they can. It’s called capitalism, and we all thrive on it.   And if 100 million Americans do it and wind up supplying power to the other 200 million, and thus "one-up" them financially, well that's OK with me, too.   You know why.  Because 1/3 of the people tend to invest and work harder than the other 2/3 and The American Way rewards them with bigger homes, cars, pools, etc.  

Notice the beneficial secondary effect if 30% of the EMC’s members go solar: The EMC, in turn, doesn’t have to obtain power from other sources (cost savings), hopefully dirtier sources at that (peaker plants and peak load prices during the Solar Window hours of each day, too).


Right.  I've had a negative power bill (the EMC pays ME every month) since it went up in 10/10.  I still pay a monthly grid maintenance fee, and that's fair enough.

 Here's my grid-operator friend's take on it (he incorporates the concept into a larger discussion of solar's value):

This article has a picture describing how to calculate the value of solar tariff (VOST). It's broken into parts: energy, capacity, transmission etc. I really think this is the future as far as paying for solar goes. It's too bad there are still so many old school thinkers that can't let go of net metering.

I wrote to the FiT administrator at LADWP yesterday. They opened up a 20 MW FiT auction on the 1st of Feb. As of yesterday there was less than 1 MW left. The price is 17 cents/kWh. The next auction will open up in June or July at 16 cents/kWh... then 15, 14, 13, 12 cents/kWh every four months. At the end of the run you're paying a VOST and everything is fair. This idea seems so easy to explain and understand. What's not to love? 

This October, 2013 article, by the way, touts California's overall solar program as a success thus far.  In October, 2013 the state passed legislation uncorking its net metering bottle and upping its goal to 33% renewable energy by 2002. (Source).  Arizona, meanwhile, is seeing a big fight over minimum fees to charge solar residential customers.  This 2015 lawsuit by a PV maker is particularly interesting, in that the maker accuses a "solar-fee" imposing utility of anti-competitive conduct.

And for  news on the big fight over net metering in Florida, click here.

For more on VOST-based metering, click here and here.

Anyway, Georgia law calls Net Metering "Bidirectional Metering."  O.C.G.A. § 46-3-52(1) ("'Bidirectional metering' means measuring the amount of electricity supplied by an electric service provider and the amount fed back to the electric service provider by the customer's distributed generation facility using the same meter") (emphasis added).  And O.C.G.A. § 46-3-52(5) defines people like me (grid-tied, rooftop solar array owners) as the owner of a "Distributed generation facility":

(5) "Distributed generation facility" means a facility owned and operated by a customer of the electric service provider for the production of electrical energy that:

      (A) Uses a solar Photovoltaic system, fuel cell, or wind turbine;

      (B) Has a peak generating capacity of not more than 10kw for a residential application and 100kw for a commercial application;

      (C) Is located on the customer's premises;

      (D) Operates in parallel with the electric service provider's distribution facilities;

      (E) Connected to the electric service provider's distribution system on either side of the electric service provider's meter; and

      (F) Is intended primarily to offset part or all of the customer generator's requirements for electricity.


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Georgia law requires Georgia utilities and electric cooperatives to buy excess power from Solar PV producers like me, though it leaves the "net metering" term undefined and thus each utility or EMC gets to negotiate with you how much it will pay you for your excess power.  But Georgia law limits how many producers like me can line up for that deal.   Here's some political perspective on that point elsewhere.  This, too (covers the creation of two opposing classes of ratepayers, those with solar, and those without, and note that in the Fall of 2013 Georgia Power began pushing for an add-on fee just for Solar customers).

As of November, 2010, net metering was offered in 43 states, Washington, D.C., and Puerto Rico (see map of state net metering rules from DSIRE).  For a more detailed description of state net metering policies and links to the authorizing legislation, see the DSIRE database, which is a project of the Interstate Renewable Energy Council funded by the U.S. DOE and managed by the North Carolina Solar Center.  (Source).

Here's how Californians explain "Net Metering" (note the full retail rate payments).  Here's a later post on it.  This, too.  And here's a July, 2013 NYT article on how net metering figures into the "existential threat" to utlities -- with a discourse on the California scene. Note this earlier take, by  blue-state greenie group, on the California net metering controversy regarding Sand Diego Gas & Electric's proposed special charge on Solar PV producers. Here's a later article on that, too.  5/24/12 -- California's Net Metering Decision passed (cleaner version here), and it's explained here.  6/11/12 -- This piece nicely captures the varying views on net metering, what the rate should be, the accounting angle to it, etc.  12/12: California's "Net Metering" true-cost controversy discussed here, as rebutted here.  January, 2013: California Net Metering analysis.  Here's the actual report.

Updates:

April, 2015:  Connecting your PV system to the local grid should be as easy as getting cable for your home.  (Source)

May 2014: Homeowners blocked from tying to the grid -- "circuit's full."  (Source)

December, 2013:  An effort to charge "free-rider" Solar power homeowners, rather than pay them, for backfeeding their power into the grid.  (Source).

November, 2013:  The net metering fight is getting downright nasty in Arizona, fostering Tea Party alignment with greenies.

October, 2013:  Utilities, including Georgia Power, want to charge Solar PV producers like me to offset the lost revenue I represent.  (Source) (Source).  I asked my friend PhotoMofo to respond to that WSJ article.  Here it is:

The Utilities won't be able to totally block solar but I do see them rolling back NEM programs and eventually having them replaced by value of solar tariffs (VOSTs) or what I like to call value of energy tariffs (VETs) - easier to pronounce and patriotic - America, Fuck Yeah!

You have to think about what happens when you replace NEM with VETs. Let's say your household's electricity consumption is 500 kWh/month and/or 6000 kWh per year. Typically if you're in a place where NEM is offered you'll size your system to deliver 6000 kWh/year because that's what the incentive structure is telling you to do. If you're in a place where VETs are offered the incentive structure is gone and you're down to dealing with price signals. The price signal you have is that the retail price of electricity is perhaps 15 cents/kWh while your solar electricity production costs might be 10 cents/kWh. I posted a story about this yesterday based on a German plant. 

These guys designed the system so that most of the production would be used on site. This allows them to capture retail value for all of that electricity. The small portion they sell back for the FiT rate is about 1/7th (or less) of their overall savings due to the system. A residential or commercial customer in the US, Japan, Australia or where ever else can apply the same sort of analysis to a system they're thinking of installing to get similar results. I'm not sure where the goal should be. I think we'll find that properly designed systems will be able to produce 66% to 75% of the electricity for a typical household. So let's use the 6000 kWh/year household demand from above and let's say that we're in a place where a rooftop PV system makes 1500 kWh/kWp. That means you'd size to 4 kW if you wanted to satisfy 100% of your consumption under an NEM scenario. You'd rather size to 3.5ish kW under a VET scenario. About 3500 kWh would go to feed onsite load while 1750 kWh/year would be sold back to the utility. There's only a subtle difference here and that tells you something about how screwed the utilities are. 

So the Utilities can go ahead and roll back NEM and we should all fight for solar getting an appropriate VET that's based on a regulated compromise. Consumers will then have good price signals to use to build their systems appropriately rather than oversizing them like they do when faced with NEM programs. NEM leads to integration issues. VETs lead to integration solutions.

The Utilities are going to end up selling less electricity either way. If they sell 10% less they'll need to raise Access Fees to balance out their revenue. The regulators will help them do that. But if fixed fees were raised by say 10% you're still only talking about a few dollars a month per ratepayer. Once solar is up to 10% of the grid it will be having a significant impact on wholesale electricity prices which should drive some savings for end users to help cancel out part of the rise in fixed fees. But the lower wholesale prices would also drive down the Value you'd get for your excess feed which would modulate the growth of the solar market. I think that's good system feedback. You'd build in 10 year contracts for people who installed solar. That would grandfather them in and allow them to get their system paid off before renegotiating a presumably lower backfeed contract ten years later. As with any contract of this nature you could do risk adjustments by building shorter contracts with higher prices or longer ones with lower.

Hope that makes sense. Sure is a lot of positive news lately. 


Here's a February 25, 2013 article advocating no caps on net metering.

January, 2013:  The debate over Net Metering benefits and costs.  Here's my grid operator friend's take on the "Vote Solar" study's position within that debate:

I think the study is bogus myself. The way I reason it, if Net-Metering is this good for rate payers then people with PV systems aren't getting full value for their systems. Vote Solar who commissioned the study should actually be petitioning the CPUC for better remuneration rates. 

I just don't see it. Net-metering in PG&E's territory probably pays back PV owners 15 to 20 cents/kWh. I think that's too high. I like Adam Browning but I think he should be trying to move beyond net-metering. He should be pushing for a fair value study on excess feed. Once you have that study in hand you make that payment rate (let's say 8 to 12 cents/kWh as a guess) a 10 or 20 year contracted value. Every year or two there'd be another value assessment and you reset the payback rates. This is just like how a FiT works only you're basing the payback rate on value rather than artificially trying to make the underlying technology profitable. 

The longer Vote Solar holds their grown on Net-metering the closer we come to the Net-Metering Cap. Once you reach the cap what happens then? May as well work out a fair and sustainable payment solution now and put it in place. Net-metering has been a simple workable payment policy for the short term but we have build a better policy for the long term. 

Here's a piece that asks, "Is Net Metering for Solar Power a Subsidy?"  Here's a May, 2013 piece on utility company resistance to net metering.  And here's a July, 2013 NYT article on how net metering figures into the "existential threat" to utlities -- with a discourse on the California scene.

Here's another (June, 2013) Net Metering article encapsulating the cost-allocation debate that makes Net Metering so controversial, and here's my grid operator friend's June 11, 2013 response to it:

Both sides are wrong if you ask me. 

On one side you have the pro-solar guys demanding we keep net-metering without any standby charges. They don't want to give an inch. On the other side you have the utilities talking all this BS about solar being unfair to other ratepayers. The truth is in the middle.

Here's a basic example. In California the average household uses 6000 kWh per year. For each kWh the average Transmission and Distribution (T&D) charges are around 5 cents for a total T&D charge of $300. If you had a PV system large enough you could escape all of this $300 but the cost wouldn't go away - it would have to get spread out to other ratepayers. Now, the tricky thing here is that PV systems provide savings that are shared between all the ratepayers. How much in savings?  It's impossible to quantify these savings without a study. The utilities are well equipped to do the studies but we don't see them publishing them any numbers. That's actually an argument against them. If they really believed net-metering was this terrible burden on non-solar ratepayers they should be rolling out the whitepapers. I haven't seen anything solid... Have you.

Another way I look at the net-metering issue is this. We've got time. Let's say 10% of residential electricity was net-metered. If this was the case then the 90% of non-solar customers would have to cover the 10% who aren't paying their electricity bills. It adds to an extra $33/year for other rate payers. That's a small enough number that I don't think we're dealing with an immediate crisis. It's going to take years to get up to 10%. 

But on the other side of the coin the pro-net-metering crowd are being overly stubborn and myopic. It's easy to see this net-metering system will eventually break 15 or 10 years ago. It's also easy to see that this mechanism doesn't provide the right price signals to solar customers. We should be concentrating on self-consumption and to do that we need to start tweaking our appliance standards. Net-metering isn't pushing us in this direction. It's an incentive without any responsibility attached. 

I think we should be experimenting with value based payment systems. They'd be contractual with 10 or 20 year terms. The rates would probably be around 10 cents/kWh. That's not as good as net-metering but it's fair.

One thing I like about the self-consumption concept is that you minimize your exposure to the net-metering problem. You mitigate the problem. If you could manage your energy production and usage such that you're using 66% or 75% of your production you only need to worry about selling the remaining 25 to 33%.?

The only way to get these high self-consumption rates is with a properly designed system coupled to an energy management system. But here's the cool thing... if you had an energy management system you'd be able to use it 24 hours a day - not just when the sun was shining. That means you'd have a system that was capable of using real time prices (or some other signal) to adjust consumption. This ability is important.?

There's a debate going on in Germany and elsewhere about security of supply. What do you do when the sun isn't shining and the wind isn't blowing. The basic argument is that we need to ensure there's enough capacity available to fill demand. But here's what you have to think about. What if demand (AKA: load) was always trying to follow local rooftop solar supply or maybe even wind supply? If that was the case then demand (Load) would fall when there wasn't any sun or wind available. What this means is that our idea of capacity shouldn't be limited to generation capacity alone - when we think of capacity we should also think about flexible load. How do we get more flexible load? Like I always say... by encouraging self-consumption. How do you encourage self-consumption? By tweaking appliance standards. If all of our refrigerators were smart enough to shut down and start up according to price signals and or frequency signals then the refrigerator demand would turn into a sort of capacity. This means you don't need as many power plants to cover load because the load is smart enough to turn on/off when power is available/unavailable?

Here's a website that discusses smart-appliance-grid management.

Here's a "net metering" video that doesn't bother to answer any of the economics questions that go with it (e.g., should those who feed excess power into the grid pay anything at all toward the grid's construction and upkeep costs?).

Here's a Massachusetts effort to deal with the net metering question.  8/6/12: It's governor signed new net metering legislation.

Net metering is tied to Feed-In-Tariff rates, which I discuss here, and also in my "Germany Watch" page where I'm collecting  on German's Solar PV efforts, especially its much-debated FIT policy, as extensively described herehere and here, and I invite readers to share with me research on it.  Net metering is part of a larger picture, that of tying solar power into the national grid.

The Germans, by the way, are world leaders in things solar, and thus will be cutting new paths in this sector.  Here's a January, 2013 policy twist that may spread outward and dramatically affect solar power producers worldwide:

Increasingly, the focus in Germany is on this kind of "real-time net metering." In conventional net-metering, which Germany has never had, a homeowner's power production is merely subtracted from the household's power consumption irrespective of simultaneity. Since 2010, Germany has been looking into ways to make payments for solar power partly contingent upon the grid's demands at particular times. 

(Source).  Catch that?  "Real time" would mean hey, don't just erect solar arrays and plug them into the grid.  First, assay the need for your solar-generated electricity in your part of the nation's power grid, and then construct your array.  Or rather, the local utility may do that and offer you a reverse-meter credit rate based on what it needs, and not simply by what your array will produce.  That effort would be part of Germany's bid to more efficiently deploy and integrate variable renewable power, which is precisely what solar power is -- until someone comes up with cost-feasible electricity storage




Here's an organization with pretty cool graphics -- they "grade" states on their FIT policies.  Here's their summary of Georgia's policies (they give Georgia an "F").  Here's a follow-up by that org.

I also discuss Net Metering, vis-a-vis Feed-In-Tariff policies, here.  Check out this map on grid-parity pricing.

Contact me: freemarketsolar@juno.com
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James Christopher Desmond,
Dec 22, 2013, 12:54 PM