2014 solar trends episode 1: The Phantom Meter

2014 solar trends episode 1: The Phantom Meter

The New Year is a natural time to take stock of what was and what is to come. This month, we’ll highlight the solar trends we anticipate emerging over the course of 2014. We start today with 2014  solar trends episode 1: The phantom meter.

Of course, the battle over net energy metering—also known as NEM or just net metering—isn’t a new trend. This conflict has been heating up for years, but we expect it to spread and generate an unprecedented level of activity in 2014.

Most utilities—investor owned utilities (IOUs), in particular—have historically disliked net metering. During the emergent phase of distributed PV, however, net metering was relatively insignificant and the utilities took little notice. With the rapid growth of distributed PV during the last two years, that has changed. Some utilities are now taking notice and moving to limit or curtail net metering.

In 2013, we saw net metering challenged in several jurisdictions, including California and Arizona. This year, we anticipate further net metering proceedings across a larger number of jurisdictions. The American Legislative Exchange Council (ALEC) has even made net metering repeal a priority issue after unsuccessful attempts to roll back state renewable portfolio standards in 2013.

So, why all the fuss? Net metering has been enormously successful in supporting solar growth in the U.S. According to GTM Research and the Solar Energy Industries Association (SEIA), distributed solar installations have grown by a factor of five-times over the last five years to surpass 1,500 MW in 2012. Most of these systems are net metered. According to the Solar Foundation, more than 119,000 Americans worked in the solar industry in 2012, with many of those jobs related to sales, distribution and installation. The majority of these jobs were related to net metered solar installations. Net metering is also a contributing factor to the nearly 50% drop in the cost of an installed solar system over the last few years, and the fact that a new solar system comes online every four minutes in the U.S.

The biggest problem with net metering is not the policy itself, but the way electric utilities are regulated. IOUs in the U.S. are typically regulated monopolies. The model is very simple: the utilities own the assets, and spread the costs of building and maintaining those assets over all the kWhs consumed by their customers.

Distributed generation complicates this model by mixing generation and consumption in the same transaction. The incumbent utility regulatory model never contemplated this type of transaction. Even if net metering approximates the value of solar or even undervalues it, the regulated utilities and their regulators are likely to continue to struggle with it.

There are several alternatives to net metering. The Arizona Corporation Commission has levied a fee on solar to compensate for its use of the grid. This solution has not been popular. The utilities believe the fee is too low, and the solar industry believes that net metering is a bargain for utilities as the electricity produced is more valuable than the retail rate.

Another alternative to net metering involves breaking the transaction down into two separate transactions: 1) pay customers for the power they generate, and 2) charge customers for all of the electricity they consume. This is sometimes referred to as a buy-all/sell-all policy. In this scenario, the compensation rate for the solar electricity produced by utility customers then becomes the issue.

For several years now, Clean Power Research has been working with utilities, regulatory bodies and the industry to develop a fair and transparent methodology for calculating the Value of Solar. This Value of Solar methodology takes into account the value of each of the attributes of distributed solar. The Value of Solar work can either be used to determine if net metering is fairly compensating solar generators, or to define a Value of Solar tariff.

While the Value of Solar tariff is likely an economically more accurate tool than net metering for compensating distributed generation owners, it will involve rate setting before public utility commissions. The solar industry is concerned that it will be very expensive to be involved in dozens of simultaneous rate cases across the country.

Are we left now with a multi-year battle over net metering and how to compensate the owners of distributed generation for the value of the electricity they generate? Perhaps, perhaps not. The good folks of Minnesota may now be showing us a better path.

In mid-2013, the Minnesota legislature passed a number of new energy laws, including one directing the Minnesota Department of Commerce (Commerce) to construct a Value of Solar methodology that utilities could elect to use in place of net metering, which remains the default policy. To accomplish this task, Commerce created a series of workshops to engage all stakeholders on the creation of a Value of Solar methodology. This has resulted in a methodology that seems to be winning the acceptance, if not the praises, of all stakeholders.

The process began with a workshop for all stakeholders to discuss the opportunities and challenges associated with interfacing PV and the electrical grid. The workshop included review of a meta-analysis of Value of Solar studies that have been performed to-date, noting the cost components studied and the methodologies chosen.

Prior to the second workshop, we worked with Commerce to create and distribute a proposed approach to the methodology. The second workshop then included a presentation of the proposed methodology as well as an opportunity for all Minnesota stakeholders to submit their comments on the proposed methodology.

From this strong footing of mutual understanding, a third workshop was held to address the major disagreements over the methodology, and a fourth workshop presented the final draft methodology. Comments on the final draft methodology have now been received, and will be addressed in the final methodology that will be presented to MN’s public utilities commission this month.

Perhaps other states will take a lesson from the good folks in Minnesota and convene similarly thoughtful, reasonable and transparent processes to come up with fair ways to compensate owners of distributed generation—and circumvent a ‘phantom meter’ conflict.