Net Metering Policy Takes Center Stage in California

The nation’s biggest solar market now faces regulators’ biggest solar conundrum — the cost shift.

California’s long-awaited proceeding on distributed solar compensation may offer important answers to new questions about the costs of renewables that will come with the Biden energy transition.

Net energy metering (NEM) compensates distributed solar owners for generation exported to the power system at the retail electricity rate. At low solar penetrations, that may not impose significant costs to other customers. But utilities and solar advocates differ on the cost-benefit balance at the higher penetrations now forecast by the U.S. Energy Information Administrationthe Solar Energy Industries Association (SEIA), and others. To get past the controversy, stakeholders across the U.S. are working toward a successor to NEM.

“At the heart of any good successor tariff is the recognition that retail rate NEM overpays customer generators,” Edison Electric Institute (EEI) Executive Director for Regulatory Affairs Adam Benshoff said. Because it is passed to other customers, it is “an unfair and unnecessary subsidy” and the best way to support distributed solar’s growth is “a properly designed NEM rate that doesn’t overcompensate.”

But imposing a successor tariff is premature in most states now because research shows “solar’s benefits to the grid exceed its costs when penetration is low,” SEIA Vice President of State Affairs Sean Gallagher said. Research also shows that “at penetrations of 5% to 10%, the cost-benefit curve starts to flatten and a new policy that aligns customer behavior with grid needs can benefit both.”

For regulators, utilities and solar advocates who would design a new tariff to support solar growth, the challenge is to protect non-solar owning customers by balancing any increase in system fixed costs with the value of the system benefits from increased solar.

A successor tariff that imposes more costs than benefits is unsustainable and distributed solar’s future is in a successor tariff that benefits all stakeholders, solar advocates and utilities agree. That is why attention is turning to California where the world’s fifth largest economy, with a 22.3% solar penetration, just opened a new proceeding to reconsider NEM.

Across the country

Because NEM begins to impact non-solar owning customers when penetrations reach 5% or more of peak demand, concerns about distributed solar’s costs and benefits begin with its forecasted growth. And distributed solar’s growth was forecast to be “10% to 15% between 2023 to 2025” without extension of the federal tax credit, according to 2020 Q4 SEIA-Wood Mackenzie U.S. Solar Market Insight Report, released Dec. 15.

The latest COVID-19 relief bill’s functional extension of the tax credit through 2025 and anticipated further support for clean energy from the incoming Biden administration seem likely to accelerate that growth and increase the federal and state actions around the country to reconsider NEM.

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