Effective energy policies, economies of scale and new technologies have achieved something remarkable: solar energy production is now at the scale and cost necessary to be competitive with, if not cheaper than retail electricity from utilities. Solar energy is becoming part of the mainstream. Families, schools and businesses are going solar in record numbers nationwide, even as incentives decrease. Now that we’ve built this new energy economy, it’s critical that we keep the way clear for Americans to keep going solar. Net-metering policies are an instrumental piece to this puzzle that deserve a closer look.
“Since 2006, when the solar Investment Tax Credit first went into effect, we’ve gone from being an ‘upstart industry’ — one that our critics predicted would fail miserably — to one of the fastest-growing industries in the United States,” said Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA), which publishes the U.S. Solar Market Insight quarterly report in collaboration with GTM Research.
With demand for solar stronger than ever, forward-thinking investor-owned utilities (IOUs) are getting in on the game. PG&E in California, for example, has interconnected over 100,000 solar rooftops. The utility is connecting an estimated 2,500 new solar power systems every month and currently counts more rooftop solar installations in its service area than any other utility in the United States.
“We deliver some of the cleanest energy in the nation to 15 million residents in our service area,” said Helen Burt, PG&E’s senior vice president and chief customer officer. More than 1,000 MW of rooftop solar power are presently produced in PG&E’s service area, which is enough to power approximately 225,000 customer homes for a year.
“We are deeply committed to supporting customers who choose to go solar and encourage customers to explore it as an option,” Burt added. “The good news is that rooftop solar has come of age, and with installation costs falling, the pace of adoption is quickening.”
Net-Metering: The Great Debate
The implementation of net-metering policies across most of the country has given solar customers an even greater advantage. Not only do these provisions grant solar customers the exact match of the retail electricity rate for any excess solar-produced electricity sent to the grid, but they also allow homeowners to work backwards to “shave” electricity from the most expensive tiers off their bills first.
Net-metering policies were actually a major factor in bringing solar electricity into the mainstream. The availability of grid-tied solar made solar significantly less expensive and easier for the average person to adopt. The solar industry, legislators, utilities and their governing bodies in many states eventually put net-metering policies into place, which have enabled reimbursement for the electricity sent to the grid from individual solar power systems installed on homes and businesses.
For a monthly electric bill of $200 in Northern California, for instance, a 4- to 5-kW grid-tied solar electric system (depending on the amount of roof space) would be recommended to produce the kWh needed to shave 80 percent of the electricity usage at a fixed cost. Solar savings is calculated by an “avoided cost” meaning the difference between a customer’s fixed, solar cost per kWh, versus the higher price they would have paid to use the same electricity purchased from the utility.
A 4.5-kW solar electric system purchased by a Northern California resident without a rebate in 2013 will have a net lifetime price per kWh of $0.088. So for every kWh that this customer shaves off the electricity bill with solar, that rate of electricity is replaced with an 8.8¢ cost, which represents a marked difference from the higher prices of electricity billed at the upper tier rates of 35¢ or 31¢ or even 15¢. Thus, over the days, months and years, the customer recoups the investment through the production offset and corresponding savings.
And as fossil fuel electricity rates continue to rise each year, the total savings through fixed energy costs leads to growing savings. A total of 44 states, along with the District of Columbia, have adopted net-metering policies thus far. California — which leads the nation in installed solar capacity at more than 5,650 MW — has received an “A” grade six years in a row for its net-metering policies from the Vote Solar Initiative (Vote Solar) and the Interstate Renewable Energy Council, Inc. (IREC). The organizations publish their state ratings every year in Freeing the Grid, an annual publication whose purpose is to build an objective record of solar policy development.
All eyes were on California last year when the state made significant changes to its net-metering policy with the passage of Assembly Bill 327. After undergoing a series of amendments, AB 327 was signed into law by Governor Jerry Brown in October 2013 and took effect in January of this year.
“This bill is about keeping electric rates affordable for all Californians while promoting renewable energy growth,” said AB 327’s author, Assembly member Henry T. Perea. AB 327 in part addresses the IOUs’ concerns about future modernization and maintenance of the utility grid, which is changing as tens of thousands of residential solar power systems are being installed. The grid needs to be adapted to accommodate this bi-directional energy network, and in an aging system that was built as a one-way street, there are challenges.
However, change is inevitable, as the demand for solar is transforming the energy landscape in California. The IOUs’ worries have been somewhat assuaged by the passage of AB 327, which contains a provision enabling the California Public Utilities Commission (CPUC) to charge all residential ratepayers up to a $10 fixed monthly fee for grid infrastructure maintenance costs. The authorization of this fixed customer charge comes in response to the IOUs’ stance that California’s tiered residential rate structure, established in 2001, is no longer practical, given the state’s changed energy landscape of today.
California-based San Diego Gas & Electric (SDG&E) issued a statement in the months before AB 327 was passed, which read in part: “SDG&E strongly supports AB 327 as a necessary first step to begin to correct California’s broken, outdated and inequitable residential electric rate structure. The current rate structure does not reflect how customers use energy today.”
Net-Metering Policy Avoids Cap through 2017
The bill has also directly impacted California’s net-metering policy, including a change that makes more solar customers eligible for the financial credits that utilities are required by state law to make available on a first-come-first-served basis under the current net energy metering (NEM) tariff. Existing law in California had established a cap on these financial credits set to kick in when the electricity generated by all of the eligible customers’ solar panels equals 5 percent of the utility’s peak electricity demand. But the passage of AB 327 has codified a decision made in 2012 by the CPUC that converts the 5 percent cap into a cumulative capacity limit.
Under AB 327, each of California’s three IOUs has been assigned a cumulative capacity limit: 607 MW for SDG&E; 2,240 MW for Southern California Edison (SCE); and 2,409 MW for PG&E. Beginning when either that capacity is hit, or July 1, 2017 arrives, a new NEM tariff to be established by the CPUC will go into effect. In addition, the scheduled suspension of the current net-metering program that was slated to go into effect on December 31, 2014 has been lifted under AB 327.
Though California’s IOUs have expressed concerns that the state’s net-metering policy is not cost-effective for non-solar customers, a comprehensive study published last year by the non-profit solar advocacy organization Vote Solar found these worries to be unfounded. According to the study, “recent changes in residential rate design and updated models of the costs which the utilities avoid when they accept NEM power exported to their grids show that NEM does not produce a cost shift to non-participating ratepayers; instead it creates a small net benefit on average across the IOUs’ residential markets.” Moreover, this net benefit is expected to increase once new rate changes created under AB 327 — which will result in the lowering of California’s upper tier rates and the raising of its lower tier rates — go into effect.
As the latest developments in California illustrate, net-metering provisions continue to play an integral role in the growth of rooftop solar installations throughout the nation. Thus, it is vital that legislators, utilities, the solar industry and their advocates continue to work together to create policy that recognizes today’s changing energy landscape. Doing so will surely be a benefit to all.