To encourage rooftop solar systems on homes and businesses, federal and state governments have provided a number of generous subsidies and other encouraging policies. The outcome of those perks has been a contribution of distributed solar PV from rooftop systems of 0.3 percent of U.S. electricity generation in the first 11 months of 2015, according to the Energy Information Administration. That has brought solar energy’s contribution in those first 11 months of 2015 to just under 1 percent of total generation.
But, one of those policies has been found to treat consumers of electricity without solar panels on their roof unfairly. That policy is net metering, where owners of a rooftop solar system are paid retail electric rates for any unused power that they generate. The problem is that they do not pay for the infrastructure that the excess power uses to reach other consumers, even though they are dependent upon the infrastructure for their sales of electricity. Those electric consumers without rooftop solar systems are paying for transmission and distribution costs that should also be borne by solar rooftop owners. Net metering also results in additional administrative costs for the electric utility, which show up in other users’ bills. People who cannot afford solar installations are subsidizing the more wealthy who can afford them, and those costs to the non-solar consumers are rising as more solar is deployed.
To fix the problem, states are making changes to their net metering policies. Nevada, for example, recently made changes to its net metering rules and rates that provide a less generous rate system to current and future customers. The changes prompted SolarCity and other solar panel industry leaders like Vivint and Sunrun to leave the state.
It may be surprising that a net metering change would be so problematic to solar panel companies when solar panels are declining in cost and the federal government’s lucrative 30 percent investment tax credit for solar energy, which was to expire this year, was recently extended until 2022. To understand the issue, look at the economics of the following example.
Suppose electric utilities in Nevada were to reduce the compensation for net metering from retail to wholesale rates to put solar panel users on a level playing field with other generators. The retail rate of electricity in Nevada is 12.39 cents per kilowatt-hour, while the wholesale price for electricity in the region averaged around two cents per kilowatt-hour in December 2015. Solar panel owners are effectively receiving more than 6 times as much for their electricity sales than the going rate of electricity generation, and the utility is passing those costs on to other users.
According to a report from Lawrence Berkeley National Lab, the cost of a residential solar system is around 25 to 30 cents per kilowatt-hour. Including federal and state subsidies and tax benefits, that figure would be reduced to 15 cents per kilowatt-hour or less. If the retail rate for electricity from the grid without net metering fees is less than that, solar is a poor investment; if it is more, solar is a good investment.
Source: Institute for Energy Research
Date: Feb 22, 2016