Net Metering for Solar Power Generation: Will it Set in the West?

Battles over California public utility regulations might not seem like they would impact us here in New Jersey.  But, if you care about promoting solar power generation or happen to prefer stable weather patterns, then a push by California electricity utilities to end incentives for rooftop solar power installation concerns you.  California leads all other states in the country when it comes to the total number of rooftop solar installations.  This is attributable to natural advantages like total population and climate, but also a number of state policies that incentivize solar power installation – the most important of which are installation subsidies and net metering.   Net metering enables utility customers that generate electricity through solar power (or other sources in some cases) to sell the portion of electricity that they don’t use to the utility for use by other customers.  In California (and New Jersey, actually), individuals or businesses who sell electricity back into the grid are credited at retail rates, though some other net metering states credit customers who sell back into the grid at the much lower wholesale rate. The New York Times reports that California utilities are lobbying “to reduce the credits and limit the number of people who can participate” in net metering.  They argue that without these changes, their business model will be threatened and customers not generating solar power will pay increasingly higher bills:

[U]tility executives say that when solar customers no longer pay for electricity, they also stop paying for the grid, shifting those costs to other customers. Utilities generally make their profits by making investments in infrastructure and designing customer rates to earn that money back with a guaranteed return, set on average at about 10 percent.

If the costs to maintain the grid are not being borne by some customers, then other customers have to bear a bigger and bigger portion,” said Steve Malnight, a vice president at Pacific Gas and Electric. “As those costs get shifted, that leads to higher and higher rates for customers who don’t take advantage of solar.”

As is stated in the Times piece, critics of the Utilities’ stance argue that solar power generators add value by creating dispersed power within the grid system and should be rewarded for that.  But, even if one takes the utility representatives at face value, it raises serious questions about how the utility model will evolve in coming years.  Regulators set utility rates at levels that are designed to maintain a level of profit that is high enough for utilities to cover overhead and attract investment.  The overhead costs of establishing and maintaining the system that delivers energy to an individual customer don’t change very much based on the individual customer’s level of energy usage.  Consequently, if a customer becomes more energy efficient, that has the effect of raising the cost per kw of energy delivered by the utility company.  If efforts to achieve more efficiency are successful, then rates have to increase or be passed on to others in order for utilities to be profitable, the very issue – though perhaps not to the same degree – that concerns California utilities with regards to net metering.

Even without incentives for ordinary citizens, moves by companies like Verizon and Walmart to develop their own renewable power sources show that distributed energy generation will challenge the traditional public utility model.  Utilities have developed expertise in many areas – customer usage patterns, the intricacies of electricity delivery, billing practices, grid maintenance and expansion - that should allow them to adapt to a changing landscape.  But, adaptation requires innovation, in strategy, regulatory approach, and perhaps other areas. Former U.S. Secretary of Energy Steven Chu thinks that utilities should model themselves after the old AT&T.  In an interview on NPR early last month, Mr. Chu said utilities should approach customers and say,

“ . . .allow us to use your roof, allow us to use a little corner of your garage, and we will equip you with solar power. We own it. We maintain it. We're responsible for it. You don't have any out-of-pocket expenses. You just buy electricity at the same rate, or maybe even a lower rate. In addition to that, you have, you know, like five kilowatts of energy storage in your home. And five kilowatts - when you're in a blackout situation and you want to keep your refrigerator going, you want to keep a couple of energy-efficient light bulbs lit at night - that goes a long way.”

This would address the net metering problem and provide utilities with more grid flexibility.  Obviously, this will not address all the challenges that utilities face.  Of course, nobody knows for certain that this is the correct model for all, or even any, utilities to pursue.  But, one thing is certain.  Maintaining the status quo when it comes to energy use is not acceptable.  Curtailing efforts to achieve energy efficiency or to increase clean energy generation cannot be the answer.  So, it is important that we keep our eye on what is happening in California.  The Times article concludes:

“The next six to 12 months are the watershed moment for distributed energy in this country,” said Edward Fenster, a chief executive of Sunrun, adding that if their side prevailed in California and Arizona, it would dissuade utilities with net metering programs elsewhere from undoing them. “If we don’t succeed, the opposite will be the case and in two years we’ll be fighting 41 of these battles.”

Including right here in New Jersey.