Renewable Energy Group News: A New Approach to Solar Net Metering

by Murtha Cullina

Since 2004, more than 20,000 Connecticut homes have added solar panels, creating the equivalent of a 154-megawatt power plant spread across the entire state. This $696 million investment has not happened by accident. The state's high electricity prices and low-cost solar financing from the Connecticut Green Bank have been a recipe for the home-solar boom.

As in many states, Connecticut homeowners have also benefited from steadily declining solar panel manufacturing costs, as well as a state "net metering" law.

Net metering allows homeowners to receive the full retail rate for the energy that their solar panels generate, while any excess generation at the end of the year is reimbursed to the homeowners by utilities at the wholesale rate.

Net metering has been a boon for solar, enabling third party power-purchase agreements and removing technical barriers. But there is growing tension between the solar industry and the electric utilities.

Now that solar power production has proliferated in many states, including Connecticut, electric utilities are pressuring state legislatures and regulators to eliminate or weaken net metering. The electric utilities argue that paying full retail rates for solar generation doesn't completely offset the fixed costs necessary to maintain solar customers on the electric grid, and that net metering subsidizes solar panel customers at the expense of customers who do not have solar panels.

The electric utilities call this cross-subsidization.

Hawaii ended net metering, but "grandfathered" existing solar customers. Nevada took the matter several steps further, ending net metering for new customers while slashing the price utilities must pay to existing net-metering customers. It made home solar uneconomical and drove solar installers from the state. If something similar happened in Connecticut, it would be similarly devastating to existing solar homeowners and the solar industry.

So what's the net-metering end game?

A compromise may lie somewhere in the middle. Some electric utilities have developed an approach to calculating the value of solar, a method they have named "Value of Solar" (VOS) cost avoidance.

This method involves the development of a VOS tariff, a cents-per-kilowatt hour rate that accounts for the benefits solar provides to the electric grid, such as avoided transmission, avoided distribution, avoided energy/fuel and avoided environmental costs, less any costs incurred by the local utility company to connect a solar homeowner to the grid.

Another aspect to VOS is for solar homeowners to have both a utility meter and a solar output meter. The electric utilities would charge their standard service rates for a solar homeowner's electricity consumption, but would pay that solar homeowner the determined VOS rate for the solar generation.

This is referred to as the "buy-all, sell-all" approach. There are concerns about taxes and ownership that will need to be resolved if VOS is to catch on. One concern is that solar homeowners selling solar generation to the electric utility may have to pay taxes on the revenue. Another concern is that the buy-all, sell-all approach may make solar homeowners ineligible for a 30 percent federal investment tax credit.

In addition, there are questions about whether a two-meter model would still allow third-party solar companies to own rooftop systems, or whether homeowners would be required to own them outright. If those hurdles can be overcome, VOS could be a win for all parties.

The electric utilities would recover their fixed costs, solar homeowners would receive a fair price for their solar generation, non-solar homeowners would no longer be subsidizing homeowners with solar, and the system would encourage efficiency and conservation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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