Net Metering is a Win-Win for Utilities and
By Mona Newton, Sun Electric
Systems, CRES Board Member
As the cost of photovoltaic (PV) systems stabilize
and the economics improve every year for grid-tied installations at
homes, ranches, and businesses throughout the state are buying and
installing more PV systems. These homeowners and small businesses
make decisions to invest based on costs, financing, and other issues
such as hedging against rising electricity prices, etc.
Unfortunately, there is one factor ─
interconnection with the local utility ─ that can hinder or help the
market economics and can have as much or more impact on the buyers’
decision than the market. That factor is the local utility’s policy
toward interconnecting distributed solar and small wind systems to
the grid. Small, distributed generators must have the utility’s
cooperation or they are dead in the water. This situation exists
because the utility is the sole supplier of electricity and, for
local electricity generators, the sole buyer. In economic terms, the
utility is both a monopoly and a monopsony, with which a solitary
customer has no leverage or alternative.
As a result, interconnection rules for utilities
are almost always decided in political venues such as state
legislatures where agreements can emerge that are fair to both
buyers and sellers. This is true for net metering as it was for
similar rules before solar and distributed generation came on the
Benefits of Net Metering
One method for interconnecting small wind and
solar systems has emerged that seems to work better for all the
rest: net metering. This is where a homeowner or rancher connects a
small PV or wind generating system through the utility meter without
installing extra hardware to measure output. The owner gets credit
for extra generation against the bill at the same rate the utility
charges for use.
There are benefits that accrue to the utility, the
customer, and the community from net metering.
For the utility, a well-designed net metering
policy provides a simple, low-cost, and easily administered way to
deal with distributed generators. Utilities without net metering
often have to deal with new distributed generators on a case-by-case
basis. This hodge-podge approach can be difficult to manage and can
easily lead to misunderstandings.
What about the traditional utility concern of cost
and reliability? First, utilities obtain electricity and capacity
from small, distributed solar installations. This is electricity
they don't have to generate themselves or purchase on the market.
For solar systems, this generation takes place every day of the year
with a very high correlation with utility peak loads. Utilities call
this a high load carrying capability. Of course, small wind systems
have a capability value that is much smaller; the wind is variable
while sunshine is relatively easy to predict. For both types of
systems, utilities obtain the benefit of additional capacity in
their service territory paid for by their customers, not by
Distributed generation also can strengthen the
distribution grid, especially in rural areas. This is because
voltage tends to drop at the end of long distribution lines when
loads are high, and if it drops below a threshold level, the
breakers will trip and a temporary blackout occurs. Grid-tied solar
systems connected to the distribution grid strengthen voltage and
improve overall service. And this grid support can defer maintenance
and upgrades in the power distribution system, which is a tangible
benefit to utilities.
Customers benefit from net metering small wind and
solar systems because they obtain a long-term guarantee of low
Communities benefit from the investment in local
generation. This investment not only increases local property values
but increases local business opportunities as well. It is the
difference between paying rent and paying a mortgage. Local
investment lifts all boats.
Myths about Net Metering
1. Net metering hurts the utility bottom
line by reducing revenues.
This argument is similar to the one against energy
efficiency that customers reducing their purchases of electricity
hurt utility revenues. This would be true if everybody bought a PV
system and put it on their roofs.
Unfortunately, there is little risk of this
happening quickly in the current Colorado economy. PV is a
developing technology that will become cost competitive with
conventional generation over a period of many years. The current
market is small and does not affect even a fraction of a percentage
point on a bottom line of any utility that reports these figures
publicly. I cannot find any example of a U.S. utility having been
harmed or even claims to be harmed by net metering. In Colorado,
solar doesn’t yet register on the pie chart of fuel-types
contributing to electricity generation.
Nevertheless, any net metering policy should
receive regular review to monitor progress of the technology and
development of the market. The service provided by electric
utilities is extremely valuable, and no one that I know wants to
hurt that industry. If solar (and especially energy efficiency,
which has a much larger potential for impacting rates than solar)
gets to the point where it actually reduces utility revenues, I
believe rates should be restructured to guarantee that service.
After all, solar needs a grid to connect to!
2. Net metering represents a subsidy from
one group of customers to another.
This argument has to do with the "rate base plus"
formula that utilities use to charge customers. The argument is that
utilities charge all customers in the same class a single rate,
which represents an average cost of doing business plus profit.
Under this time-honored formula, all of the differential costs of
providing service to individual customers are lumped into a single
average cost per kilowatt-hour (kWh). So the person who uses a lot
of electricity during the day when the cost of obtaining electricity
is higher pays the same as the person who uses all of their
electricity at night during off-peak hours. One could argue that one
type of consumer “subsidizes” another based on patterns of
Utilities and their customers have supported this
averaging formula for years in the name of economic development. For
example, building a new home represents a cost for a utility because
it must invest in new generating capacity in order to supply this
electricity. Therefore, ratepayers subsidize solar systems through
net metering no more than they subsidize construction of new homes.
Both represent expanding business opportunities, and electric
utilities have figured out a way to accommodate this economic growth
through existing rate structures for more than a century.
3. Net metering represents a burden for
The opposite is actually true because large
organizations are better equipped to handle more complicated
arrangements. Net metering is as simple as it gets to administer
because it requires no special equipment, no new rates to establish,
no new procedures. All that is required is that the utility add a
line in the ledger for each net metering customer to carry forward
credits until the end of the year.
Compare this with the existing alternative for
non-utility generators, which requires installation of another
meter. Then the utility must make special trips to read this meter
and readjust its accounting procedures to keep track of another
meter for a single account. All this for measuring small amounts of
electricity (in utility terms) from distributed generators. A study
by the Pacific Gas & Electric Company in California in 1996 found
that the cost of reading the extra meters for distributed PV systems
alone outweighed the cost of net metering.
A well designed net metering system is a win-win
for Colorado utilities and their customers.