What is Net Metering and Why Does it Matter?

The Battle of NEM

Solar and traditional utilities are slugging it out over net metering (or net energy metering — NEM), yet few outside the energy sphere — and, indeed, many in the sector — understand the term. Nor the controversy behind it. At face value, the quarrel appears quaintly inconsequential, a nerdfight over arcane policies with little relevance to public life. That view would be wrong. Indeed, the future of the photovoltaic (PV) solar industry may hinge to a large degree on the outcome of the net metering issue.

What is this NEM, Exactly?

Net metering, simply, involves the two-way flow of electricity and its associated costs into and out of a PV home connected to the energy grid. When the home uses electricity from the grid, it pays for that electricity. When the home’s solar panels produce more electricity than the home needs at the time, the excess flows outward into the grid. The utility debits or credits the homeowner on the same per-unit scale, accordingly.

PV: Public Good or Public Mooch?

Rocky Mountain Power — a division of PacificCorp, which is itself a subsidiary of Berkshire Hathaway Energy — recently released the results of its “Net Metering Study.” In the study, the Utah utility claims that net metering forces non-solar users to subsidize PV homes connected to the grid. To the tune of $400 per year per PV home. Photovoltaic users, in other words, don’t pay their fair share of the overall electricity bill.

While its study purports to be independent — critics and independent energy experts are busy investigating the study’s methodology as I write this — Rocky Mountain Power has echoed the same logic by which Nevada reduced the benefit of net metering for PV users (Nevada’s decision resulted in a mass exodus of the solar industry from a state with more sunshine than almost any other). Indeed, more than half of US states are considering policy changes that would weaken or undo NEM.

So, are Rocky Mountain Power, et al right in their assessment? Are PV homeowners not paying their fair share? It depends on who you listen to. Both sides make convincing cases for and against NEM and its rightness and wrongness, its morality, if you will.

The Case Against Net Metering

The case against NEM, summed up in RMP’s report, rests on the idea of distributed cost: everyone connected to the grid should bear the lifetime expenses associated with building and maintaining that infrastructure. It is unfair, the argument goes, that solar users can enjoy the grid for 23 hours per day and then be repaid for the excess energy they produce for one hour per day (according to RMP, PV users are energy-independent for 1 hour per day, on average). When PV owners sell back excess energy at retail rates, they wind up making less net contribution to the power infrastructure. This forces non-PV customers to make up the difference.

Additionally, following anti-NEM logic, a utility must maintain a sufficiently robust infrastructure to accommodate peak demand — those times when the system is taxed to the utmost to supply its customers with sufficient energy. During those intervals — and given that a PV user’s 1 hour per day of energy independence might only occasionally coincide with peak demand — a PV user taxes the system just as much during these times as anyone else. Therefore, they place a burden on the system, increasing the peak, while not paying proportionally as much as everyone else for the extra system bandwidth occasioned by their use.

Utilities and other anti-NEM stakeholders propose to right the imbalance by charging PV owners a higher upfront cost than non-solar customers. Proponents of this “fixed-cost” solution claim that the fee will restore the imbalance created by the purely “volumetric” — i.e., pay-per-kwh solely — cost model.

The Argument for Net Metering

“It’s a clever argument,” says Matt Pacenza, “but drawn in a very narrow way.” Pacenza, the executive director of the environmental nonprofit HEAL Utah, points out that the essence of the argument rests on the PV homeowner using less electricity than s/he otherwise would. “Are we going to penalize people who own a second home and only use electricity two weeks out of the year?” he asks rhetorically. “What about owners of energy-efficient homes?” Put simply, do we want to reward conspicuous energy consumption and penalize energy conservation?

A May 2016 study by the Brookings Institute rebuts the claim that NEM represents “a net cost shift from solar-owning households to others.” The analysis states that net metering “frequently benefits all ratepayers when all costs and benefits are accounted for.” Allowing “there are legitimate cost-recovery issues associated with net metering,” the study recommends reform of a utility business model “built largely around selling increasing amounts of energy.” The Brookings report concludes that

Regulators and utilities need to engage in a…conversation about how to integrate distributed-generation technologies into the grid nationwide, with an eye toward instituting a fair utility-cost strategy that does not pose significant challenges to solar adoption.

Instead of the current profit model, the Brookings Institute calls for a “performance-based utility rate-making model” in which a “utility’s financial success” is tied to “its ability to deliver what customers and society want.” In other words, the utility makes money when it delivers “quantitively defined outcomes” such as “system resilience, affordability, or distributed generation integration.”

OK, sounds good, but what does all that mean? One thing, at least, is clear: we’d all benefit if stakeholders from both sides of the debate, as well as from regulatory agencies, were to sit down like adults, look at all the data, and hammer out some commonsense initiatives. We want utilities to receive fair treatment. At the same time, we want to promote energy efficiency. And, if the Brookings Institute is correct in its assessment that “solar energy…delivers benefits far beyond what solar customers are receiving in net-metering credits” and that solar is a net benefit to society, would it not be a step backwards to take the Nevada approach and harm the industry?

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Jacob Andra writes and publishes on global trade, manufacturing, medicine and energy. In his spare time, he enjoys his family, reading history, the outdoors, following world events, and thinking deep thoughts.

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