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Finding Common Ground: Is This Document the Answer to the Net Metering Debate?

One of the problems with the increasingly contentious debates over net metering is that both sides often apply different calculations to compare the value vs. costs of distributed solar energy. Now a new report seeks to be a roadmap that everyone can use to lay out a framework for calculating costs and benefits of net metering, and hopefully get everyone starting from the same point.

The report from the Interstate Renewable Energy Council (IREC), "A Regulator's Guidebook: Calculating the Benefits and Costs of Distributed Solar Generation," was invoked this week at Solar Power International (SPI) during talks about the future of net metering. It summarizes three takeaways about distributed solar energy generation (DSG) that should be primarily weighted in any net metering discussion: 

  • It offsets combined-cycle natural gas facility, which should be factored in as an avoided energy cost
  • Installations are predictable and should be included in utility forecasts of capacity needs, and credited with a capacity value upon interconnection
  • Valuations of societal benefits should be included, such as job growth, health benefits, and environmental benefits.

Studies in California and Vermont have concluded that net metering's annual benefits to ratepayers outweigh costs. But other states from Arizona to Texas have applied varied assumptions (and omissions) to come up with different conclusions about the costs and benefits of DSG. The upshot: there's been a glaring need for a common set of methodologies and process transparency. Are utilities including how net metering can help them defer of costs such transmission and distribution (T&D) investments, and how does that offset any lost revenues? What about putting a value on how solar DG can make storm outages less severe to all customers?

These debates may come up with different final values, but "we should be able to approach it with the same methodology," said Karl Rábago, principal of Rábago Energy and co-author of the study, in an interview just before Solar Power International. "It'd sure be handy to have a single document" that laid out best practices for analyzing the value of solar, echoed co-author Jason Keyes, partner at Keyes, Fox & Wiedman LLP.

At its heart, the report lays out a "cost and benefit unbundling" of the attributes and costs for solar generation so that they can be more easily understood, according to Rábago. "We say there's a value over there you're ignoring, or a cost you're tolerating, and they're both wrong. We can make a business plan out of harvesting that value and eliminating those costs," added Keyes. At the same time, the authors do think that net metering can be structured so that utilities "are made whole" while maintaining a level of simplicity. Maybe it'll look more like a value-of-solar-tariff (VOST) that Austin Energy determines, or maybe it'll be more adjusted to some other form of net metering.

The primary target audience for this document is regulators, who have a key role in "establishing guardrails" for how states value DSG, they explained.

"Utilities have always used avoided costs as a way to keep renewables from being implemented," such as basing them on baseload resources to translate to much higher comparative costs, points out Lee Peterson, senior tax manager with CohnReznick. This study points the way to a "huge democratization" that lays out the factors for cost/benefit analysis for everyone to see and apply. "Like it or not, it's impossible for utilities to ignore this stuff and give it no value," Peterson said.  "The day is coming a lot sooner than anyone thought as far as acceptance of distributed generation."

This new IREC study, paired with a recent one from the SEIA and SEPA, creates a body of literature showing the importance of including "a whole slew of positive attributes in addition to alleged costs" to assess DSG on the grid, Peterson said. Forget the uphill fight of convincing utilities to look at DSG because of state-mandated renewable portfolio standards (RPS); now even states without an RPS such as Georgia, South Carolina, and others can examine and justify DSG based on its merits. "That's a huge step from where the industry was even two years ago," he said.

Moreover, the skill base developed through an agreed-upon methodology will apply to other important issues down the line, from energy storage to load management and smart grid. "We need to understand dynamic resources at the distribution edge," Rábago said. Blending on-site solar PV with demand response and energy efficiency, "that's going to be the next step," Keyes added. And those further analyses of those types of resources "would benefit a great deal by this component-by-component analysis."

"Every now and then, big things move through the electric utility industry," Rábago said. Distributed resources seem to be heading this way as they become more affordable and desirable by customers and stakeholders. "Inside utility companies there's a realization that these [distributed] resources are going to be more and more a part of their lives." Once valuation methodologies can be agreed upon, "the kinds of calculations left are the ones that are in the end public and open." 

Lead image: Solar rooftop via Shutterstock

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