Perhaps no battle has ever been as bitterly fought as the one brewing between many utilities and solar power installers this year. In one corner of the ring: local energy companies, who claim that net metering incentives are unfairly charging traditional customers for the energy solar households drain off the grid. In the other corner? Solar installers and advocates, who say that lucrative incentives are a must if solar energy assimilation is to progress.
2017 is barely a few weeks in, and already we’ve seen proposals to end net metering in New York, and new challenges to recently restored net metering policies in Nevada. In Missouri, electricity co-ops issued their support of new legislation that would limit the state’s incentives, and hearings began on two Montana bills that would extend net metering caps and lock rates for current consumers. With that much in flux, it’s difficult to follow changes in statewide net metering policies on a daily basis, not to mention predict where we’ll be in a few years from now. Regardless of where you fall on the issue, it’s safe to say that net metering as a policy will likely see some huge revisions in the near future.
Bridging the Gap Between Utilities and Solar Installers
Several studies have evaluated the economic effects of solar incentives and determined that net metering policies do tend to favor solar producers. For instance, a Harvard study published in The Electricity Journal found conclusively that net metering policies overvalue solar energy. Similarly, when MIT evaluated the state of net metering, they concluded that these policies aren’t sustainable. As solar penetration grows, their researchers found, the price of electricity rises. That’s because it costs more to direct energy back and forth from solar residences than it does when electricity is simply flowing in one direction—especially since aging utility infrastructure largely isn’t equipped to handle these changes. And the elevated cost of electricity gets passed back to consumers, particularly those without solar energy systems.
However, the same authors acknowledge that incentives are necessary to achieve grid parity—a condition that only occurs when it’s just as cost-effective for homeowners to purchase a solar energy system as it is to rely entirely on local utilities for their energy needs. That’s the same argument on the lips of every solar advocate when net metering reform is mentioned. For instance, when changes to the incentive—including the addition of nine separate solar tariffs—were proposed in Nevada last year, Sunrun representatives called the proposed legislation a death knell for the solar industry in the state. They cited similar regulations that were passed for Arizona utilities, resulting in a 95 percent drop in solar panel installations. Along a similar vein, a team of researchers at Michigan Tech found that that state’s proposed rollbacks caused many new solar households to defect from the grid altogether.
So what’s the answer? There are several proposed solutions to the net metering conundrum, which represent the different ways the net metering issue could play itself out.
- Time-of-use pricing unveiled. The California Public Utilities Commission has detailed a time-of-use plan that breaks electricity rates into four incremental tiers, based on demand during the time-of-use. Proponents say this kind of plan more closely matches the actual rates consumers cost utilities for their energy. And it encourages high-level users to opt for solar installations, since expensive bills will help them achieve grid parity. Similarly, this setup helps to account for fluctuations in production that occur with solar installations.
- Federal incentives revised to encourage utility-scale installations. This is MIT’s recommendation. Under this model, the weight of offering rate-based incentives falls to the federal government, rather than being divided up among states. Likewise, renewable energy returned to the grid is credited at a flat rate—regardless of whether it comes from a utility installation, commercial farm, or residential rooftop setup. The writers argue that this would flatten out current incentive schemes, which demonstrate vast preference to residential installations.
- Incentives slashed, solar industry plummets. In a worst-case scenario for solar providers, the US’s shifting political regime could mean a complete overhaul of tax codes, similar to The Tax Reform Act of 1986. Such a massive reform could very well involve a reduction or total reversal in the solar Investment Tax Credit, which many installers use to justify the high price of solar energy systems and to encourage customers to convert. However, based on insider reports, some experts believe that won’t be a threat to solar’s future.
- Solar storage becomes a reality. On the flip side, solar storage could be the “death spiral” that utilities have feared for years. If solar storage technology were to grow reliable enough to support large-scale networks or to meet the needs of an individual home, it might end reliance on fossil fuels. To do so, the technology would have to advance well beyond its current capacity.
If there’s any lesson from the past few years, it’s that predictions like these are often meaningless. Who would have thought that solar would have progressed to its current penetration—or that we’d be discussing such a heavy revision to the tax code—ten years ago? For the future of net metering, it’s still a game of wait-and-see.