Many of the polices that helped enable the proliferation of rooftop solar installations in California, specifically net metering at the retail rate of electricity, have been preserved by the state’s Public Utilities Commission (CPUC), at least for the time being. Although net metering has come under fire in recent years, the Commission in a proposed decision issued this past Tuesday, sided with the solar industry despite utility claims that rooftop generators are overcompensated for their electricity, and do not share in covering the maintaining costs of the grid.
The Cases For and Against Net Metering
Net metering in California allows solar generators to sell excess generation back into the grid at the retail rate of electricity. This mechanism sounds simple in theory; however, grid management in an age of distributed generation (DG) is becoming increasingly complicated. Hundreds of megawatts of solar electricity are produced in California during sunny hours when residents are not at home that flow through to the grid. This output suddenly and dramatically drops off during periods of cloud cover and in the evening peak hours when traditional plants are needed to prevent the interruption of power.
Additionally, utilities argue, not without merit in some cases, that they are purchasing electricity at a dollar rate greater than what it would take them to generate an equivalent amount of electrons. Moreover, electrons are only part of the story as utilities still need to provide solar customers with standby power and voltage support to turn on their appliances and open their garage doors.
On the other hand, the rooftop solar industry is still in its relative infancy and installation can be expensive to homeowners. Net metering provides a mechanism to help manage the costs. In 2013, as more rooftop solar entered the system, California passed state law AB 327, which mandated that utilities evaluate the costs and benefits of DG to the grid, including the future of the net metering program. This summer, the utilities submitted to the CPUC Distributed Resource Plans (DRP) that proposed mechanisms that make the deployment of DG cost effective and beneficial to the grid. However, this grid evaluation opened the door to a contentious dispute over net metering, with many solar proponents advocating that net metering is a fair form of compensation, and that any attempt to adjust its rate is an attack on the new industry.
The CPUC sided with the solar industry in its decision, and declined to impose new demand charges, grid access charges, installed capacity fees, standby fees or fixed similar fees to net metering customers. Despite a big win, there are some new considerations for solar, including the CPUC’s proposal to include a one time connection fee and non-by passable charges used to subsidize low-income and efficiency programs.
Time of Use Pricing on the Horizon
The next battle appears to be time-of-use (TOU) pricing, where customers are charged real time for the price of electricity. Under this framework, the solar energy generated during off-peak hours would be priced significantly lower than the energy produced by utilities during peak hours. TOU, in theory, is simply supply and demand economics—when the demand for electricity is great, the price is higher. However, TOU may lack price transparency as solar customers may not readily understand tariffs and the value of their over generation.
Rooftop Solar Battlegrounds and Considerations
Battles like those taking place in California are taking place in commissions across the country as the grid modernizes. It is unclear what the future holds for net metering, as many predict additional challenges to come. Even in states where net metering is not currently empowered and states have not initiated “grid-of-the-future” proceedings, the value of DG and its effects on the grid will be a continuous debate going forward. Although the battles over net metering may be just the growing pains for a maturing solar industry, the potential for an ITC extension, decreasing costs, federal mandates like the Clean Power plan and current and future state programs will likely ensure the attractiveness of solar going forward.